Can I Claim a Child Care Credit If a Family Member Watched My Child?
The Internal Revenue Service provides a federal tax credit for child and dependent care costs to offset the necessary costs of childcare due to employment. Tax filers who pay family members for childcare qualify for this credit in most cases, but the IRS lays out a few exceptions for claiming the credit and sets strict limits on the maximum amount of credit that a parent can claim annually.
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Conditions
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Parents must pay a family member for childcare for their dependent in order to receive a tax credit. The IRS only offers the credit if parents use childcare in order to work or search for employment. Parents cannot receive a child or dependent care deduction if they earn income from capital gains or investments. One parent cannot pay a spouse or another dependent for childcare and qualify for the benefit. In order to claim the credit, the guardian must have custody of the child and provide for the child's welfare at least half of the tax year.
Size
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The IRS allows parents to deduct up to 35 percent of all childcare expenses if they earn $15,000 or less per year. The percentage credit gradually decreases with increased income. Parents or guardians who earn more than $43,000 annually cannot deduct more than 20 percent of all child and dependent care expenses. The maximum annual care expenses for one child or dependent cannot exceed $3,000 or $6,000 for two or more children for the 2010 tax year.
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Age
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In order to qualify for the childcare tax credit, the dependent child must be 12 years of age or younger for the filing year. Guardians can claim the credit with older dependents who rely upon the guardian for support due to mental or physical disability. Parents cannot claim the credit if their children under the age of 19 provide childcare to other dependents for pay.
Filing
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In order to claim the child and dependent care tax credit, taxpayers must fill out IRS Form 2441, Child and Dependent Care Expenses. On this form, parents must list the persons that provided the childcare and the name and Social Security numbers of the dependent children. Tax filers must attach Form 2441 to their Form 1040 when they send in their tax returns to the IRS. Parents should keep records of all childcare payments made to a family member in case the IRS audits their tax return and requires them to prove their expenses.
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