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Wednesday, 23 April 2014

How Does the Child Care Tax Credit Work?


The child care tax credit is a federal tax credit for up to $6,000 applied to those who pay child care and/or adult day care expenses. Those who pay day care expenses for a child or a disabled adult may be able to apply up to $3,000 for one dependent, or up to $6,000 for two or more dependents toward this credit on his or her tax return. The child or disabled adult must be the filer's legal dependent.

To qualify for the child care tax credit, dependents must meet specific qualifications. Children must be 12 years of age or younger. Older children must be shown to be mentally or physically unable to care for themselves. Adults who are physically or mentally disabled and require constant supervision may also qualify as dependents. The tax filer must provide a home for the dependent and pay at least half the costs of maintaining the home. The custodial parent is the only parent able to claim the tax credit for the child.

Daycare providers must also qualify for the tax filer to receive the child tax credit. The provider may not be the tax filer's dependent. If the tax filer's son, for example, is caring for the child the credit is being applied for, that son must be at least 19 years of age prior to the end of the year. Daycare providers must provide their name, business name, physical address and either a Social Security Number or an Employer Identification Number. This information must be reported on Form 2441 to claim the tax credit.

The worth of the child care tax credit is between 20 percent and 35 percent of the daycare expenses. The percentage depends on the tax filer's adjusted gross income. Publication 503 from the IRS lists the percentages for each adjusted gross income dollar amount.

To obtain the child care tax credit, the tax filer must have earned income for the tax filing year. The child care they receive must enable them to work or to look for work. In addition, the tax filer must reduce her eligible daycare expenses by any amount of child care benefit provided to her by her place of employment. The child care tax credit is available for those who have childcare expenses yearly.

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