If you are a working parent, a parent who plans to look for work this summer or at any time during the year and you have children, you may need to pay for child care. These expenses may qualify for a tax credit that can reduce your Federal Income Taxes and also some State Income Taxes.
This credit is called the Child Dependent Care Credit and is subject to various regulations. It is available throughout the year, but in summer there are special rules to keep in mind.
First, you may be able to take the Child Care credit:
- If you must pay for childcare so you or your spouse, if filing jointly, can work or actively look for work
- If one of you is a full time student or physically or mentally incapable of caring for yourself (not for the child)
Qualifying for this credit, however, is a month by month test. This means that for some occupations, such as teachers, childcare during the summer months, may not qualify because, you must be working or actively looking for work during that month.
Your income must be earned. In other words, it must be from employment of some type; self employment, employed by a business or other employer. Dividends and interest do not count as earned income.
In order to qualify for this care credit, the child must be under age 13 when you claim this deduction; not age 13, under age 13. However, if a child turns 13 during the tax year, the payments for care up to the day before they become 13 do qualify.
Caring for a child at home gets tricky. If you pay for care in your home, you may be considered a “household employer.” You can find information about this in IRS publication 926. (In a blog later this year, I will talk more about this subject).
The credit is a percentage of the qualified expenses. Usually it is about 20% Federal, but can be up to 35% depending on your income. And you may claim up to $3,000 of unreimbursed expenses in any one year for a qualified person, or $6,000 for two children. You cannot claim a credit for expenses totaling more than $6,000, so additional children will not save you any more money.
Areas covered provided the parent is working or looking for work:
- care provided outside the home in the form of summer day camps
- after school care
Areas not covered:
- overnight camps
- tutoring programs
- payment to a spouse or an older sibling for “baby sitting”
Keep your receipts and records. When you file your 2013 tax return next year, you must have the name, address and social security number or employer identification number of the care provider. If the care provider refuses to give you this information, you can still claim the credit, but when you file your return you must inform the IRS that you tried to get the number and were not able to
As we all know having children is a wonderful, but expensive proposition. This is just a small way that you can get some money back for all your hard work.