Child and Dependent Care Credit
The child and dependent care credit is available for taxpayers who incurred employment-related expenses for the care of their qualifying dependents. This credit is a nonrefundable credit range from 20% to 35% of the eligible expenses incurred. Expenses are limited to $3,000 for one and $6,000 for two or more qualified dependents.
To claim the credit, all the following test must be met:
On a joint return, both parents MUST have earned income.
The taxpayer (and spouse if married) must pay more than half the cost to keep up a home in which he and the qualified person lived.
Expenses must be incurred so that the taxpayer could work or look for work. If married, the spouse must also be working or looking for work. Expenses for overnight camp or transportation cannot be used to figure the credit.
Filing status generally cannot be Married Filing Separately (see Joint Return Test below). If the couple lived apart the last six months of the year, then one could file as Head of Household.
The childcare provider cannot be a dependent, spouse, or the taxpayer’s child under age 19, even if he is not a dependent.
Only $3,000 for one child (or $6,000 for two children) of dependent care assistance benefits are excluded from income.
Qualifying Person Test
Child and dependent care expenses must be paid for the care of one or more qualifying persons. For purposes of the child and dependent care credit, a qualifying person is:
The taxpayer’s dependent who was under the age of 13 during the time the care was being provided and for whom the taxpayer is entitled to claim him as a dependent.
The taxpayer’s spouse who was physically or mentally unable to care for himself and lived with the taxpayer for more than half the year.
A person who is physically or mentally unable to care for himself and lived with the taxpayer for more than half the year, and either:
a. Was the taxpayer’s dependent; or
b. Would have been the taxpayer’s dependent except that:
i. He received a gross income of $4,200 or more;
ii. He filed a joint return; or
iii. The taxpayer (or his spouse if filing jointly), could be claimed as a dependent by another taxpayer
Child of Divorced or Separated Parents or parents Living Apart
Even if the noncustodial parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents, he cannot treat the child as a qualifying person for purposes of the child and dependent care credit.
Earned Income Test
To be eligible for the child and dependent care credit, the taxpayer must have earned income. If the taxpayer is married, his spouse must also have earned income.
Rules for Student-Spouse or Disabled Spouse
A taxpayer’s spouse is treated as having earned income for any month that he is a full-time student at a school during any 5 months of the tax year (months don’t have to be consecutive) or, is physically or mentally unable to care for himself. The school determines what is considered full-time. A school does not include a night school or a correspondence school.
Work-Related Expense Test
To qualify for the credit, the child and dependent care expenses must be work-related. Expenses are considered to be work-related only if both of the following are true.
The expenses allow the taxpayer (and his spouse if filing jointly) to work or look for work.
The expenses are for a qualifying person’s care.
Child and dependent care expenses involved with doing unpaid volunteer work or volunteer work for a nominal salary are not considered to be working.
Joint Return Test
Usually, married couples must file a joint return to take the child and dependent care credit. If the taxpayer and his spouse are legally separated or living apart, he may be able to file as Head of Household and still take the credit. However, the taxpayer cannot use the filing status, Married Filing Separately, if he plans to take the credit. For a separated married taxpayer to be considered unmarried and eligible for the credit, all the following must apply:
The taxpayer must file a separate return.
The taxpayer’s home was the home of a qualifying individual for more than half the year.
The taxpayer paid more than half the cost of keeping up his home for the year.
The taxpayer’s spouse did not live in his home during the last six months of the year.
Care Provider Information
The taxpayer must provide information about the person or organization that provides care for his qualifying child or dependent. The information needed is the provider’s name, address, and identification number (employer identification number or Social Security number). If the taxpayer cannot provide all the required information, the credit may not be allowed.