Happy Tax Season Series: Tax Credit for Child and Dependent Care Expenses

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March 9, 2012 by msquaredlaw

If you paid someone to care for your child, spouse, or dependent last year, you may qualify to claim the Child and Dependent Care Credit when you file your federal income tax return.   Below are some important points about the credit for child and dependent care expenses.

1.  Qualifying Person.  In order to claim this tax credit, the care you paid for must have been provided for one or more qualifying persons.    Qualifying persons include your dependent child age 12 or younger, as well as your spouse and certain other individuals who are physically or mentally incapable of self-care.  You must identify each qualifying person on your tax return.

2.  Residence of Qualifying Person.  The qualifying person must have lived with you for more than half of 2011. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.  See Publication 503, Child and Dependent Care Expenses.

3.  Circumstances under which care was provided.  The care must have been provided so you (and your spouse if you file jointly) could work or look for work.

4.  Payment to Caregiver.  The payments for care must not have been paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent.  You must identify the care provider(s) on your tax return.

5 Filing Status.  Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.

6.  Earned Income.  You (and your spouse if you file jointly) must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment.  One spouse may be considered as having earned income if he or she was a full-time student or were physically or mentally unable to care for themselves.

7.  Amount of Credit.  The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.  For 2011, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

8.  Employer provided benefits.  The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income, such as a flexible spending account for daycare expenses.

On a side note:  If you pay someone to come to your home and care for your dependent or spouse, you 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.

If you have any questions, please contact us.

Muiños & Morales

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