Understanding the Child and Dependent Care Tax Credit

The IRS urges people not to overlook the Child and Dependent Care Tax Credit. Eligible taxpayers may be able claim it if they paid for someone to care for a child, dependent or spouse last year.

Taxpayers can use the IRS Interactive Tax Assistant tool, Am I Eligible to Claim the Child and Dependent Care Credit?, to help determine if they are eligible to claim the credit for expenses paid for the care of an individual to allow the taxpayer to work or look for work.

Eight other key points about this credit include:

1. Work-Related Expenses

The care must have been necessary so a person could work or look for work. For those who are married, the care also must have been necessary so a spouse could work or look for work. This rule does not apply if the spouse was disabled or a full-time student.

2. Qualifying Person

The care must have been for “qualifying persons.” A qualifying person can be a child under age 13. A qualifying person can also be a spouse or dependent who lived with the taxpayer for more than half the year and is physically or mentally incapable of self-care.

3. Earned Income

A taxpayer must have earned income for the year, such as wages from a job. For those who are married and file jointly, the spouse must also have earned income. Special rules apply to a spouse who is a student or disabled.

4. Credit Percentage / Expense Limits

The credit is worth between 20 and 35 percent of allowable expenses. The percentage depends on the income amount. Allowable expenses are limited to $3,000 for paid care of one qualifying person. The limit is $6,000 if the taxpayer paid for the care of two or more.

5. Dependent Care Benefits

Special rules apply for people who get dependent care benefits from their employer. Form 2441, Child and Dependent Care Expenses, has more on these rules. File the form with a tax return.

6. Qualifying Person’s SSN

The Social Security number of each qualifying person must be included to claim the credit.

7. Care Provider Information

The name, address and taxpayer identification number of the care provider must be included on the return.

8. IRS Free File

Taxpayers are encouraged to use IRS Free File to prepare and e-file their federal tax returns, including Form 2441. Free File is easy, fast and available only at IRS.gov/freefile.

Taxpayers who pay someone to come to their home and care for their dependent or spouse may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer’s Tax Guide.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

 

 

(This is a reprint of Internal Revenue Service / IRS Tax Tip 2017-28)