Child Care Tax Benefits
The United States government offers tax deductions and credits designed to encourage certain behaviors. One such credit is the child-care credit, which gives money back to parents who pay for child care for their children, encouraging people to find work and stay off welfare and other types of government aid. The child-care credit reimburses parents for some of the cost of daycare or babysitters.
Other People Are Reading
-
Identification
-
The child-care tax credit is reported on Form 1040 after your tax liability is calculated, lowering the amount of taxes you will owe.
While some credits are refundable--meaning that if the credit is $6,000 and you owe the government only $4,000, the government will send you a check for the difference of $2,000--the child-care tax credit can lower your tax liability only to zero. The credit is not refundable.
The credit is worth up to $3,000 per child, with a total limit of $6,000, and is calculated on Form 2441.
Qualifying Children
-
Parents may claim as many children as they would like, but the total limit is $6,000, and in most cases it takes only two children to reach that limit.
Child-care expenses can be claimed only for children who are under the age of 13. The child must be in the parents' care for more than half the year, and the parent claiming the credit must pay for more than 50 percent of the child's needs.
In the case of evenly split custody, the parents must decide which one will take the credit and the agreement should be legally documented. -
Qualifying Parents
-
This credit is allowed only for parents who need child care so they can go to work or actively look for work. It can't be used for paying babysitters while you go out to dinner or even while you go to school.
If you're married filing jointly, at least one parent must have income and earnings from working as an employee or being self-employed. If one parent works full-time and the other parent decides to go to school and needs to put a child in day care while in class, the parents can take this credit because at least one parent is working.
Qualifying Caregiver
-
The child's caregiver does not have to be a licensed child-care center. There only a few limits regarding who is a qualified caregiver.
The caregiver cannot be your dependent or your child under age 19 who is not your dependant, meaning you can't pay an older child to watch a younger child and take the child-care credit.
In addition, the caregiver must be reporting the income to the IRS as self-employment earnings. If you were to pay your babysitter "under the table," you couldn't take this credit.
Household Employee
-
If the child-care provider comes to your home to watch the child rather than providing care elsewhere, the provider may be considered a household employee. In this case, you may be considered an employer and the babysitter is an employee. The line between babysitter and household employee can be difficult to define, so you should consult a tax attorney or accountant about your individual situation.
-
