Tax Information on Child Care
In certain instances, the federal tax code provides income tax relief for working families to help defray the cost of necessary child care through the Child and Dependent Care Credit. To claim this credit, taxpayers must fill out IRS Form 2441 and submit it along with their tax returns. This credit may be taken in addition to the Earned Income Credit by families who qualify.
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Income Tax Credit
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A federal income tax credit for child care only may be taken for qualifying children or dependents. In order to qualify, the child must be the dependent of the taxpayer, must live with the taxpayer for more than half of the year and must be younger than 13 years of age when the care was given. Special rules apply to children of divorced or separated parents. The qualifying child must have a valid Social Security number.
Earned Income
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The child care tax credit may only be claimed if the taxpayer and the taxpayer's spouse. if filing a joint return, have earned income during the tax year for which the claim is made. Earned income may includes wages, salaries, tips and compensation from self-employment. Unearned income, such as interest and dividends, unemployment compensation and child support payments, typically does not count as earned income.
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Qualifying Expenses
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In order to qualify for the child care tax credit, child care expenses must be paid in order for the taxpayer, and the taxpayer's spouse. if filing a joint return, to work or to look for work. The work may be full time or part time. The work may be as an employee, independent contractor, self employment or for work in the taxpayer's business or partnership. Volunteer work does not qualify.
Non-Qualifying Expenses
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Certain expenses frequently associated with child care do not qualify for the child care tax credit. Expenses for food, lodging, clothing, education or entertainment do not qualify. Expenses for kindergarten or higher education does not qualify. Summer school and tutoring programs do not qualify. Expenses for child care at a pre-school below the kindergarten level does qualify for the child care tax credit as does care provided by before-school or after-school programs.
Considerations
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Taxpayers only may claim the credit for for child and dependent care expenses if they file their tax return on Form 1040, Form 1040A or Form 1040NR. This credit may not be claimed on Form 1040EZ or Form 1040NREZ.
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References
Resources
- Photo Credit child playing image by Christopher Hall from Fotolia.com
