Tuesday, February 16, 2016

Cash in on the Dependent Care Credit

Working parents know how difficult it can be to find appropriate care for their children while they work. If you pay for someone to watch your children while you work, there’s a possibility you may be eligible to claim the Dependent Care Credit. This credit has certain requirements that must be met in order to be eligible to claim it on your tax return, but it can be a big benefit for parents.

The care must be provided during work hours, and the credit is deducted as a percentage of 20% to 35% of all expenses that qualify. The credit accounts for up to $3,000 of qualifying expenses for parents with one child, and double that for two or more dependents. If child care expenses are reimbursed by your employer, the IRS allows you to exclude up to $5,000 in reimbursement from your income.

What are the Requirements?

The following six qualifications must be met in order to claim the credit:
  1. Expenses must result from child care provided to you so you can earn a living.
  2. The child cared for must be your dependent, and you must financially support him/her.
  3. You must pay for at least half of the household expenses.
  4. Married taxpayers are required to file jointly with their spouse.
  5. Expenses have to exceed and reimbursement amounts provided by an employer.
  6. The child care provider must meet certain requirements and you must provide their information to the IRS
What Types of Expenses Qualify?

There are different types of child care expenses which can qualify you to claim the credit. These can include:
  • Day care center
  • In-home care by a specialized service
  • Babysitting costs
  • Nursery school
  • Private school for students in kindergarten and below (exceptions apply to handicapped children)
  • Transportation expenses by a third party to a child care facility (personal transportation is not eligible)

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