Child and Dependent Care Credit

Eleven Things About the Child and Dependent Care Credit

Paid someone to watch the kids so you could work?  You may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are 10 things to know about claiming a credit for child and dependent care expenses.

1. The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons.
2. The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
3. You – and your spouse if you file jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment.
4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return.  You must identify the care provider(s) on your tax return.
5. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
6. The qualifying person must have lived with you for more than half of 2010.
7. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.  It is a sliding scale as your income increases with a floor of 20%.
8. For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
9. The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
10. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax.
11. Child care expenses can be associated with before- and after-school care, day camps and similar programs, as well as pre-school expenses. The Internal Revenue Service has determined that children who are in kindergarten do not qualify for the deduction because it is an educational cost. This is true even if the cost is for a private school that has a full day of kindergarten. Day camps must not be overnight camps to qualify as deductible.  The IRS has indicated that the costs of sending a child to overnight camp are not employment-related.