Along with the lazy, hazy days of summer come some extra expenses, including summer day camp, nursery school, and pre-school. The IRS has some good news for parents: those added expenses may help you qualify for a tax credit. Sorry, overnight camp does not qualify.
The child-care credit is designed to assist working parents with some expenses involved in raising a child. The credit varies depending on the taxpayer’s earned income. It reduces the amount of Federal and state income taxes due, which can in turn increase your refund.
You must meet several criteria to qualify for the child-care credit. To qualify you must meet all of the following:
- You (and your spouse, if married filing jointly) must have earned income for the tax year.
- You must be the custodial parent of the child.
- The child-care service must have been used so that you could work or look for employment.
- Your filing status must be single, head of household, qualifying widow(er) with dependent child, or married filing jointly. Married couples filing separately are not eligible.
- Your child must be under 13 or must be disabled (any age qualifies).
Since every family is different, the IRS has exceptions to the rules for the qualification process. These exceptions allow a great number of families to take advantage of the credit:
- For divorced or separated parents, the custodial parent can claim the credit even if the other parent has the right to claim the child as dependent due to divorce or separation agreement.
- If your spouse was a full-time student who attended college for at least five months out of the tax year, the IRS considers her to have earned income for each month she was a full-time student.
- If your spouse is a disabled adult, the IRS waives the earned income requirement.
Whether your child-care provider is a sitter at your home or a day-care facility outside the home, you’ll get some tax benefit if you qualify for the credit. Depending on your income, the credit can be up to 35 percent of your qualifying expenses.
You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals to figure the credit. Employer-financed dependent care reduces the credit base.
For example, if you have one child and you receive a $1,500 reimbursement of child-care costs from your company’s plan, the amount eligible for the tax credit is reduced to $1,500 ($3,000-$1,500). On your Form W-2, your employer will report the amount of tax-free reimbursement.
To claim the credit, you must file IRS Form 2441, Child and Dependent Care Credit, with your tax return and include the care provider’s employer-identification number (EIN) or Social Security number.
For more information, check out IRS Publication 503, “Child and Dependent Care Expenses.” This publication is available at www.irs.gov, or by calling 1-800-TAX-FORM (800-829-1040).
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or firstname.lastname@example.org.
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