Though Hard to Believe, Children CAN Sometimes Save You Money

Though Hard to Believe, Children CAN Sometimes Save You Money by Stephen J. Ganns{3:42 minutes to read} If you are a working parent or a parent looking for work, you will probably need to pay for childcare. These expenses could qualify for a tax credit that could reduce your federal and state income taxes.

The credit is commonly referred to as the Child Dependant Care Credit, but like everything else in the tax code, it is subject to certain regulations.

  • If filing jointly or head of household, you may be able to take the child care credit if you pay for child care so that you and your spouse, if married, can work or actively look for work.
  • You may also be able to take the child care credit if one of you is a full-time student or physically/mentally incapable of caring for yourself (disabled).

Qualifying

Qualifying for this credit is a month-by-month test.

  1. For some occupations, such as teachers, child care during the summer months may not qualify because you must be working or actively looking for work during that month.
  2. It is understood that your income must be earned. Income from dividends and interest does not count towards the amount of income needed to claim this credit.
  3. The child must be under age 13 when you claim this deduction; not at 13, but under age 13. However, if the child turns 13 during the year, the payments for care up to the day before they turn 13 do qualify.

In-Home vs Outside the Home

Most child care is done outside the home, but in some cases, a child is cared for in the home. That can be tricky. If you arrange for in-home care, you may be considered a household employer and, therefore, subject to withholding tax, unemployment tax, and even workers compensation rules. (Since this subject is too voluminous to get into in this blog, we are going to confine ourselves to talking about child care outside of the home.)

Credit Amount and Covered Providers

The credit comes out to about 20% of the qualifying expenses, but can be up to 35% depending upon your income. You may claim up to $3,000 for any unreimbursed expenses in any one year for 1 child or $6,000 for 2 or more children. You cannot claim a credit for expenses totalling more than $6,000, even if you have more than 2 children being cared for.

Areas covered, provided the parent is working or looking for work, are:

  • Daycare
  • After-school care
  • Summer day camps

Overnight camps are not covered. Nor is payment to a spouse or an older sibling for babysitting covered.

As always keep your receipts and records.

If you have any questions regarding the Child Dependent Care Credit, please contact your tax preparer, or you may contact us anytime at 914-682-7007 or at steve@gannscpa.com.

 

Stephen J. Ganns

Stephen J. Ganns, CPA
914-682-7007
steve@gannscpa.com
www.www.stephenjgannscpa.com

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