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| Karen Nevling CPA |
Many parents pay for childcare or day camps in the summer while
they work. If this applies to you, your costs may qualify for a federal tax
credit that can lower your taxes. And we are all for lowering our taxes, aren't we? Don't get me wrong, we all need to pay our fair share and we do. But if we can save a little of that tax money by taking advantage of legal deductions or credits that we qualify for, I'm all for helping you to do that.
Here are SEVEN facts that you should know about
the Child and Dependent Care Credit:
1. Your expenses must be for the care of one or more
qualifying persons, your dependent child or children under age 13, and must be
work-related. Now you might ask, what is a qualifying person? This would be a child, who is your dependent, who lived with you for more than one half the year, and was under age 13 when the care was provided. But, it could also be a spouse who was not physically or mentally able to care for himself or herself, and lived with you for more than half the year. Spousal care is easily missed and does qualify for this credit. For more about qualifying persons, see IRS Publication 503.
2. You must have earned income, such as from wages,
salaries and tips, or from self-employment. Your spouse must also have earned
income if you file jointly.The error made here, if you’re married you must file
a joint return to take the credit. But this rule doesn't apply if you’re
legally separated or if you and your spouse live apart.
3. You may qualify for the credit whether you pay for care
at home, at a daycare facility or at a day camp. The credit is a
percentage of the qualified expenses you pay, and can be as much as 35 percent
of your expenses, depending on your income.
4. The total expense that you can use for the credit in a
year is limited. The limit is $3,000 for one qualifying person or $6,000 for
two or more.
5. Overnight camp or summer school tutoring costs do not
qualify. You can’t include the cost of care provided by your spouse or your child who is under age 19 at the end of the year. You also cannot count the cost of care given by a person you can claim as your dependent. Special rules apply if you get dependent care benefits from your employer.
6. Be sure to keep all your receipts and records. Make sure
to note the name, address and Social Security number or employer identification
number of the care provider. You must report this information when you claim
the credit on your tax return.
7. Your expenses for care must be work-related. This means that you must pay for the care so you can work or look for work. This rule also applies to your spouse if you file a joint return. Your spouse meets this rule during any month they are a full-time student. They also meet it if they’re physically or mentally incapable of self-care.
If your spouse is not a student, has no earned income, and is able to care for themselves, you are not able to take the credit. This is also a common error.
Remember that this credit is not just a summer tax benefit. You
may be able to claim it for care you pay for throughout the year. If you qualify for the credit you will need to complete Form 2441.
If you pay a provider to care for your dependent or spouse in your home, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare taxes and pay federal unemployment tax. For more information, give me a call at 720.441.3789, and we can discuss it.
Also, visit my website at: http://karennevlingcpa.com/
