Making sure your children are cared for while you work can be costly, which is why the Child and Dependent Care Credit (CDCC) is such a great tax credit for working parents. The credit applies not only to children under 13, but also to dependent adults. Let’s look at what dependents are eligible.
The credit lets you recoup up to 35% of your qualifying expenses, up to a maximum of $3,000 in expenses for one dependent, and $6,000 for two or more. That works out to a maximum credit of $1,050 for one dependent, and $2,100 for two or more.
The credit is reduced at higher income levels. If your AGI is less than $15,000, you get a credit of 35% of all qualified expenses. Then, for every $2,000 your AGI increases, the percentage decreases by 1%. At $43,000 and above, the credit is fixed at 20% of qualified expenses.
BUT: If your employer pays for a dependent care benefit plan, your maximum credit is reduced by the amount you received.
The credit is for the care expenses of any dependent child under the age of 13, but there are some other requirements:
- The care must have been provided by someone other than you or your spouse so you and your spouse could work or look for work.
- You or your spouse, if filing jointly, must have earned income.
- The care provider can’t be your spouse, a parent of a qualifying dependent, a dependent you claim or your child who is not at least 19 years old.
- The dependent or child must have lived with you for at least half the year.
Having a qualifying adult dependent – a spouse or relative – who is incapable of caring for themselves may qualify you for the credit. If the dependent is not cared for by you or your spouse and the dependent lived with you more than half the year, any qualifying expenses can be deducted. Adult day-care programs and similar programs are qualifying expenses.
Claiming the Credit
Claiming the Child and Dependent Care Credit is a two-part process. First, fill out the Dependent screen for the child or other dependent, including the amount of child or dependent expenses you paid for the year. Then fill out the Form 2441 – Child and Dependent Care Expenses screen to provide particulars about the care expenses and who they were paid to.