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Child and Dependent Care Tax Credit

Child and Dependent Care Tax Credit

Caring for children or dependent adults is one of the biggest monthly expenses many families face. But without primary care, parents may be unable to leave home to earn a living or go to school.

The internal revenue service child and dependent care tax credit provide a tax credit of up to 35% of the expenses you pay someone to care for your children or adults dependent.

However, several rules and exceptions make the tax credit a little more complicated than it appears.


What is the worth of the child and dependents' care credit?

As of 2020 tax year, which you will file in 2021, the tax credit for child care and dependents varies from 20% to 35% of child care expenses up to $3,000 for a dependent or $ 6,000 for two or more dependents. Any child you claim must be under the age of 13.

The credit starts at 35% of adjusted gross income (AGI) up to $ 15,000, then gradually decreases by 1% as income increases to $ 43,000, in which case your tax credit is 20%.


How to be eligible for the child and dependent care credit

You must have a child or dependent adult who cannot be alone while you are working, looking for work, or going to school full time because that person cannot take care of themselves. You must also have earned income in the tax year from employment or self-employment.

If you are married, your spouse must work, actively searching for work, or attending school, and therefore be unable to stay at home and take care of your children. Your spouse must also have earned income, but there is an exception if your spouse is disabled and unable to care for someone else. You cannot claim if you file as married filing separately, except in certain exceptional circumstances.

You can get child care and dependent credits, even if your employer subsidizes costs or provides care.


Rules for your qualified dependents

Your child must be under 13 or, if over 13, physically or mentally unable to take care of themselves. You can claim adult care expenses for dependents 13 years of age or older or for your spouse if they cannot physically or mentally take care of themselves.

If you are married, but you live apart from your spouse, you can apply for child care or adult care for someone who has lived with you for at least six months. To be eligible, you must pay more than half the cost of maintaining your home.

Sometimes separated or divorced parents agree to allow the non-custodial parent to declare their child as dependent on the tax return. If you do not claim your child as a dependent and they live with you more nights during the year than the non-custodial parent, and you paid for child care, you can claim the credit.

Dependent adults are eligible if they have lived with you for more than six months and are "physically or mentally unable to take care of themselves."

The IRS defines people who cannot take care of themselves physically or mentally as "people unable to dress, clean, or eat due to physical or mental problems" and those who need constant attention because they risk injuring themselves.


Rules for Qualified Child Care Providers

If you pay child care expenses to a dependent who cares for your children, you will not be able to claim these expenses. For example, you cannot claim payments from your dependent daughter to care for your brother. However, the tax code permits you to claim expenses if you do not declare your daughter as a dependent, and she is 19 years of age or older—at the end of the year.

Regardless of your spouse's age, the IRS will not allow you to claim a tax credit for money you pay to your spouse to take care of a qualifying child. You cannot claim payment if your caregiver is a family member or dependent, and the child you are caring for is under 13.

Summer camps are qualified providers if they specialize in one activity (e.g., IT or football), but night camps are not eligible.


Summary

  • In most cases, the credit is for the care of dependent children under 13 and adults who cannot care for themselves.

  • The applicable percentage depends on the AGI.

  • The Child and Dependent Care Tax Credit percentage ranges from 20% to 35% of the amount spent on child care, up to the limit of $ 3,000 or $ 6,000.

  • There is no limit on what you can earn and qualify, but the percentage decreases by 1% as your income increases.


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