Tax Credit for Daycare Expenses
A tax credit is used to reduce the amount of taxes you owe to the IRS. Tax credits are available for a wide range of expenses, including costs related to the care of children or other dependents. In order to qualify for the Child and Dependent Care Credit, you must meet the requirements as established by the Internal Revenue Service.
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Who Is Eligible
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Before you can claim the child and dependent care credit for daycare expenses, you must first determine your eligibility to do so. According to IRS Publication 503, you are eligible to claim the credit if you paid daycare expenses for a qualifying dependent, you had earned income during the year and paid dependent care expenses so that you could work or look for work. Your filing status must be single, head of household, qualifying widow or widower or married filing jointly. You cannot deduct child care expenses if they were paid to someone who could also be claimed as your dependent.
Qualifying Dependents
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The individual you paid daycare expenses for must pass the qualifying person test. To claim the credit for child care expenses, the child in question must have lived with you for at least half the year and been age 13 or under at the time the expenses were paid. If you are separated or divorced, you may only claim the credit for a qualifying child if you are the custodial parent. You may also claim the credit if you paid adult daycare expenses for your spouse or other adult dependent who is physically and/or mentally disabled and otherwise unable to care for themselves.
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Amount of the Credit
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The IRS bases the amount of the credit you can claim for daycare expenses on your adjusted gross income (AGI). First, you must determine what amount of work-related expenses you may use to calculate the credit. As of 2011, you could claim a maximum of $3,000 for one qualifying individual and up to $6,000 for two or more qualifying persons. You must then multiply this figure by a percentage based on your AGI to determine the actual amount of your credit. Depending on your income, you may be eligible to receive a credit for anywhere from 20 to 35 percent of your child care expenses.
Considerations
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You must provide the IRS with the name, address and the Social Security number or taxpayer identification number of the individual or organization you paid child or adult daycare expenses to. If the daycare provider claims tax exempt status, you may omit the taxpayer identification or Social Security number. If you pay someone to provide routine child or adult care in your home while you work, the IRS may determine that you are a household employer. In this situation, you may be responsible for withholding and paying federal unemployment tax, Medicare tax and Social Security tax.
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