Child care is a major expense for working parents. Similarly, you may also incur costs for other dependents, such as aging parents. Fortunately the Tax Code provides relief.
Limits - In 2016 a child or dependent care credit can be based on up to $3,000. of expenses if you spend that much on care for one dependent. That dependent can be a child under age 13 or a disabled relative. If you're paying for more than one such dependent, the credit can be based on up to $6,000. of expenses in total. To get this credit, you must pay for the care of the child that enables your and your spouse (if you have a spouse) to work, to look for work or to go to school full time. Plus the person you are paying to care for your dependent cannot be a dependent (otherwords you cannot pay one of your children to care for another child and claim this as dependent care).
Work are defined by the IRS can be for others or in your own business or partnership. It can be either full time or part time. It also includes looking for work. However, if you do not find a job and have no earned income for the year, you cannot take this credit.
Eligible expenses - home care or day care costs are covered.
LOOPHOLE - in addition, the expenses of sending a child to day camp can qualify for this credit. Money spent on overnight camp, boarding schools, summer school and tutoring programs cannot be counted.
Payoff - this tax credit ranges from 20% to 35% of the money spent (subject to limitations above). The higher your income, the lower the percentage. The top credit of 35% is available to taxpayers with adjusted gross income of up to $ 15,000. The majority of taxpayer are eligible for the 20% credit.
Example - Your AGI exceeds $43,000. and you have 2 children that you send to day camp so both parents can work. The total fees are $7,000.00. With 2 children the first $6,000 is eligible for the 20%. This credit will save you $1,200.00 in tax.
Frequently asked questions and answers:
"My spouse and I both work and are eligible for Child and Dependent Care Credit. May I include my 5 year old son's parochial school kindergarten tuition cost as a qualified expense?" The answer is No. The expenses for kindergarten do not qualify because it is primarily educational in nature. However you can count the part of the expenses of sending your child to school that is for your child's care IF it can be separated from the expenses of education. For example you may count the cost of an after school care program.
CHILD & DEPENDENT CARE