The child and dependent care credit compensates for the costs for childcare for American families with low to moderate incomes and can be claimed in addition to other above-the-line tax deduction and tax credits.
Let’s take a closer look at how the tax credit works for dependent care, what counts as a qualified expenses and how you can get the most from this valuable federal tax benefit from your tax return.
The child and dependent care credit (CDCC) is a tax credit for eligible costs involved in the care of qualified persons. Parents and healthcare providers can claim this credit on their federal income tax return if they and their qualifying persons meet certain criteria.
To claim healthcare costs, the qualifying person or dependent age must have been under age when the care has been provided or are a spouse or person who is physically or mentally unable to self -care. In addition, you (or your spouse if you submit a joint tax return) must have incurred the healthcare costs while working or looking for work.
Read more: Tax credits versus subtractions: What is the difference?
The child and dependent care credit is a non-residual dollar-for-dollar credit. This means that if you have a tax assessment, the qualifying costs that determine that your credit amount can lower your tax obligation to zero, but cannot cause a refund. If you do not owe taxes, you cannot get any money back by claiming this tax benefit on your federal tax return.
The child and dependent care credit is available for all tax monitors, regardless of the income earned. However, your income does determine the credit amount that you can receive, up to a maximum of $ 3,000 per qualifying dependent child or individual, or $ 6,000 for two or more people.
The part of the total eligible costs usually falls between 20% and 35% for most taxpayers. Most low -income families are eligible for part of the maximum credit interest rate and receive considerable tax benefits if they owe money to the IRS.
The child and dependent care credit helps families to lower and facilitates child poverty, but there are rules to claim it. Follow this guide or use the IRS.GOV tool and the dependent care credit to ensure that you are eligible before submitting your tax return.
Step 1: Clarify your archiving status and adapted gross income
To claim the child’s tax credit and the dependent care, your archiving status must be getting married together, or you must be the primary caregiver if you are divorced or separated. For divorced or divorced parents with joint detention, the IRS says that the parent can claim the credit with the higher income.
Although this tax credit has no income limits, you must have earned income during the tax year to be eligible. Income from investment income, social security and unemployment benefits and pension income are not eligible as earned income for this credit. Calculate your custom gross income (AGI) by adding all your taxable income and then deducting permitted adjustments. As soon as you know your AGI, you can determine what percentage of the qualification costs you are eligible to claim.
For taxpayers who are married to submitting a joint declaration and one spouse is a full -time student, that spouse is treated as income for each month that they are registered full -time.
Read more: What is the earned income tax credit and are you eligible?
If your archiving status and income mean that you are eligible for this credit, the next step is to see if the following criteria fit with the dependent whose healthcare costs you are trying to claim.
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The person is claimed as depending on your tax return.
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If it is a qualifying child, they are younger than 13 years old.
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If no younger than 13, the dependent person is a spouse or another person who is physically or mentally unable to take care of himself.
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They have lived with you for more than half the year.
IRS Publication 503 Details specific rules and exceptions for spouses who live separately or those who only offer financial support to a dependent one for a certain part of the year.
There are two components that determine which costs are eligible for the child and the dependent care tax credit: the type of costs and the care provider. Although the IRS has fairly generous rules about those who are eligible as a care provider, certain family members (such as your spouse or a grandparent) and some household employees are not eligible as care providers for this credit.
Some costs such as application costs or deposits can be excluded. And for divorced or divorced parents payments for child benefit are not eligible.
The rules are also difficult for dependent care benefits that are received through a care facility sponsored by the employer, so consult the IRS website for more information.
The IRS requires records and receipts for the eligible costs that you have paid, as well as the identification number of the taxpayer or the social security number of the person or organization who has provided care.
For those who submit the CDCTC for an adult dependent or spouse who cannot take care of himself, you can be asked to provide proof of the nature, size and duration of the disability.
After you have checked the suitability and have collected your data, use IRS form 2441 to claim the tax credit on your tax return.
Keep in mind that for future tax years it can be logical to take advantage of a dependent care sponsored by the employer flexible expenditure account (DCFSA) where you can set aside a maximum of $ 5,000 in dollars before taxes to pay for childcare costs.
1. Has the child and the dependent care tax credit been reimbursed?
The child and dependent care credit is not a repayable credit. This means that it can lower your tax assessment, but it cannot generate a refund.
The Child Tax Credit (CTC) is also a non-residual tax credit that is aimed at helping families with low and middle incomes with the costs of raising a child. The extra tax credit for children is the repayable part of the child tax credit that is available for families with a low income.
However, the CTC does not require proof of expenditure and, instead, offers a fixed credit amount per dependent child to take into account daily household costs such as rent, food and more.
Although you cannot claim costs for the child and the dependent care credit that you have paid with funds of a flexible spending account, you may be able to use both in the same tax year.
For example, if you have emptied your DCFSA earlier in this year on childcare costs, any additional healthcare costs that you provide will be eligible for the dependent care credit.