Child and Dependent Care Tax Credit – How to Qualify and How much it is

Raising children is increasingly expensive, and one of the more significant costs that many families struggle with is childcare expenses. In fact, some families pay more for their children’s care services than they do on their home mortgage payment. Uncle Sam recognizes the financial burden associated with daycare and other dependent care expenses. The Child and Dependent Care Tax Credit have been reducing the tax liability of parents across the country for many years. With recent changes to this credit, you need to know how it works and what the size of your tax credit may be.

Understanding the Child and Dependent Care Tax Credit

This important tax credit is available to taxpayers who have a child or dependent care expenses. These dependents must require regular attention and should not be able to stay alone on their own. If you pay for care expenses for children or for adult dependents, a portion of the total amount that you spend on care services may be credited back to you when you file a tax return. In this way, the credit can directly offset the amount of your tax liability. Keep in mind that this credit is not refundable. This means that you cannot receive a tax refund based on any portion of this credit.

Qualifications for the Tax Credit

There are a few qualification tests that must be passed before you can claim this tax credit on your tax return. First, children must be younger than 13 years old. Older children and adults may be qualifying dependents as well. They must be unable to be left alone because they are not capable of self-care. This person must be claimed as a dependent on your tax return.

Second, you must be unable to care for them because you are working or at school. If you claim the credit because you are working, you must report earned income on your tax return from your job. This applies to salary, hourly and self-employed work. You may also qualify for the credit if you are looking for a job or if you attend school on a full-time basis. At the same time, if you are married, your spouse must also work, attend school full-time, be looking for a job or be disabled and unable to provide care.

Finally, the childcare provider cannot be affiliated with you and should be a separate entity. For example, you cannot claim this credit if one of your older dependent children receives compensation from you for babysitting the child. You will need to provide the tax identification number for the provider.

How Much Do You Qualify For?

If you believe that you qualify for a tax credit, you may be eager to learn how much your credit is worth. The maximum credit is $3,000 per child up to $6,000 in total. Depending on your adjusted gross income for the year, your credit may range between 20 to 35 percent of the total amount of care expenses that you paid. In addition, the amount of the credit cannot exceed the total amount of your earned income for the year.

Daycare expenses may continue to be a source of financial stress, but you may breathe easier knowing that you could obtain some of those funds back through the tax credit. If you qualify for this credit, ensure that you claim it properly when you prepare your next tax return.