Child and Dependent Care Credit
The Child and Dependent Care Credit is a nonrefundable tax
credit based on expenses incurred for the care of a qualifying
person. This care must make it possible for you to work or to seek
employment. This credit is based on a percentage of the amount
actually paid for care expenses.
Requirements to Claim Credit
- You and your spouse, if married, must have earned income during the year.
- You pay the care expenses so you and your spouse, if married,
can work or seek employment.
- You make the care payments to someone you cannot claim as a
dependent, and who is not your spouse or a parent of the
child.
- Your filing status is single, head of household, qualifying
widow(er) with dependent child, or married filing jointly.
- You are able to identify the person providing the child or
dependent care.
Qualifying Expenses
Qualifying expenses are incurred for the well-being and
protection of a qualifying person.
The expenses must be to provide care for a qualifying person and
must be work-related. Work-related care expenses are defined as
expenses incurred for the care of the qualifying person while you
are working or looking for work.
If you are married, both you and your spouse must work or look
for work. For more information see Earned Income.
Qualifying expenses include:
- Household services, including babysitting, nursery,
housekeeping, and other services that are ordinary and usual if
they are at least partly for the care of a qualifying person
- Expenses related to sending a child to an educational program,
if the child is below first grade. Educational programs include
nursery school, preschool, or similar programs.
- Payments to relatives who are not your dependent and are over
the age of 19, not your spouse, and are not the parent of the
qualifying person, and the qualifying person is under age 13. Even
if the person providing the care is living with you, the expenses
qualify if the above requirements are met.
Non-Qualifying Expenses
- The cost of transporting the qualifying person from your home
to the care location and back.
- The cost of sending the qualifying person to overnight
camp.
- Expenses related to food, clothing, education, and
entertainment. However, if these expenses are small amounts and
cannot be separated from the cost of caring for the qualifying
person, these expenses may be included.
Qualifying Person
- A dependent is a person, other than you or your spouse, for
whom you claim an exemption and who is a qualifying
child or qualifying relative.
- The qualifying person must be under the age 13 on December 31,
2012, or disabled (any age).
- A person who cannot dress, clean, or feed themselves due to
mental or physical problems, or a person who must have constant
attention to prevent them from injuring themselves or others.
- The child or dependent for whom the credit is claimed must be
identified by a taxpayer identification number. This number is
generally a Social Security Number, but an Individual
Taxpayer Identification Number or Adoption Taxpayer Identification
Number may be substituted.
Earned
Income
For purposes of the Child and Dependent Care Credit, earned
income includes:
- Wages
- Salaries
- Tips
- Other taxable employee compensation
- Net earnings from self-employment
- Disability pay reported as wages
- Parsonage allowances
- Meals and lodging furnished for the convenience of the
employer
- Voluntary salary deferrals
- Military pay earned in a combat zone
A spouse is treated as having earned income for any month he or
she is a full-time student or is physically or mentally unable to
care for himself or herself.
A student is considered full time if they are enrolled and
attend school for the number of hours or classes the school
considers full time. You must have been a student for some part of
five calendar months during the year. "School" includes elementary,
junior and senior high schools, colleges, universities, technical,
trade, and mechanic schools. Schools offering courses only through
the Internet are not considered a "school" for this credit.
Provider Identification
All persons or organizations providing child or dependent care
must be identifiable. In order to identify the care provider you
must supply the provider's name, address and taxpayer
identification number.
If the provider is an individual, his or her Social Security
Number or Individual Taxpayer Identification Number is
acceptable.
If the provider is an organization, the Employer Identification
Number (EIN) is acceptable.
If the provider is a tax-exempt organization (church, school,
etc.), it is not necessary to provide identification - you
may enter "TAX-EXEMPT" in place of the identifying number on Form
2441.
If you cannot provide all of the information or the information
is not correct, you must provide proof of due diligence. For the
purpose of provider identification, due diligence can be shown by
obtaining and keeping the provider's completed Form W-10, a copy of
the provider's Social Security card, driver's license (if it
includes the Social Security Number), Form W-4 (if the person is a
household employee), or a letter or invoice from the provider
showing the necessary information.
If the provider refuses to supply you with identification
information, you should report the information you can obtain at
the bottom of the form you use to claim the credit (Form 2441). On
the bottom of the second page of Form 2441, explain the information
was requested but refused by the provider.
Limitations of Credit
Child and dependent care expenses are limited to $3,000 for one
qualifying person, and $6,000 for two or more qualifying
persons.
The total child and dependent care expenses claimed cannot
exceed your total earned income for the year.
The credit is equal to 35% of the maximum qualifying child and
dependent care expenses. This rate is reduced by 1% for each $2,000
your adjusted gross income exceeds $15,000, but is not reduced
below 20%.
The total child and dependent care expenses claimed must be
reduced by Dependent Care Benefits you received from your employer.
Employer-provided Dependent Care Benefits are reported in box 10 on
Form W-2.
To claim the credit, complete Form 2441 and attach the form to
your Form 1040 or Form 1040A.
For more information see IRS
Publication 503.