If you paid someone to care for a
child or a dependent so you could work, you may be able to reduce
your tax liability by claiming the credit for child and dependent care
expenses on your federal income tax return. This credit is
available to people who, in order to work or to look for work,
have to pay for child care services for dependents under age 13. The credit is also available if you paid for care of a spouse or a
dependent of any age who is physically or mentally incapable of
self-care.
The following tax
tip was issued by the IRS in July, 2012:
Keep the
Child and Dependent Care Tax Credit in Mind for Summer Planning
During the summer many parents may be
planning the time between school years for their children while
they work or look for work. The IRS wants to remind taxpayers
that are considering their summer agenda to keep in mind a tax
credit that can help them offset some day camp expenses.
The Child and Dependent Care Tax Credit is
available for expenses incurred during the summer and throughout
the rest of the year. Here are six facts the IRS wants taxpayers
to know about the credit:
1. Children must be under age 13 in order
to qualify.
2. Taxpayers may qualify for the credit,
whether the childcare provider is a sitter at home or a daycare
facility outside the home.
3. You may use up to $3,000 of the
unreimbursed expenses paid in a year for one qualifying
individual or $6,000 for two or more qualifying individuals to
figure the credit.
4. The credit can be up to 35 percent of
qualifying expenses, depending on income.
5. Expenses for overnight camps or summer
school/tutoring do not qualify.
6. Save receipts and paperwork as a
reminder when filing your 2012 tax return. Remember to note the
Employee Identification Number (EIN) of the camp as well as its
location and the dates attended.
For more information check out IRS Publication 503, Child and
Dependent Care Expenses.
To claim the credit for child and
dependent care expenses, you must meet the following conditions:
-
You must have earned income from
wages, salaries, tips, or other employee compensation. If
you are married, both you and your spouse must have earned income,
unless one spouse was either a full-time student or was
physically or mentally incapable of self-care.
-
The payments for care cannot be
paid to someone you can claim as your
dependent on your return or
to your child who is under age 19.
-
Your filing status must be single,
head of household, qualifying widow(er) with a dependent
child, or married filing jointly.
-
The care must have been provided
for one or more qualifying persons identified on the form
you use to claim the credit.
-
You (and, if you’re married, your
spouse) must maintain a home that you live in with the
qualifying child or dependent.
What is a “qualifying” child or
dependent? The child must have been under age 13 when care was
provided and you must be able to claim the child as an exemption
on your tax return. (For an exception to this rule, see “Child
of Divorced or Separated Parents” in Publication 503, Child and
Dependent Care Expenses, at the IRS web site). A spouse who is
mentally or physically unable to care for himself or herself also
qualifies. A dependent of any age who is physically or mentally
incapable of self-care also qualifies if the person can be claimed
as an exemption on your tax return (or could have been claimed,
except for the fact that the person did not meet the gross
income test).
To claim the credit, you’ll need to
provide the name, address and taxpayer identification number of
the care provider. If the provider is an individual, this
means that you need that individual's Social Security number. If
it’s a business, you need the provider’s employer identification
number. Use Form W-10, Dependent Care Provider’s Identification
and Certification, to request this information from the care
provider.
If you’re filing Form 1040, write the
care provider information on Form 2441, Child and Dependent Care
Expenses. If you’re filing Form 1040A, the care provider
information goes on Schedule 2. You cannot use Form 1040EZ if you
claim the child and dependent care credit.
As with all good things, there are
some limitations on the amount of credit you can claim. If you
received dependent care benefits from your employer, other rules
apply.
For more information on the Child and Dependent Care
Credit, see Publication 503, or Chapter 33 of Publication 17, Your
Federal Income Tax, available at the IRS website (www.irs.gov).
Following is a
reprint of information on the IRS web site concerning dependent
care expenses. The hyperlinks to specific
documents/publications were accurate at the time this page was
written; however, since the documents are on the IRS website,
they could be moved at any time.
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Topic 602 - Child and Dependent Care
Credit
If you paid someone to
care for a qualifying individual so you (and
your spouse if you are married) could work or
look for work, you may be able to claim the
credit for child and dependent care expenses. If
you are married, both you and your spouse must
have earned income, unless one spouse was either
a full–time student or was physically or
mentally incapable of self–care. The expenses
you paid must have been for the care of one or
more of the following qualifying individuals:
-
Your dependent (under
the rules for qualifying child) who was
under age 13 when care was provided. For
certain custodial parents, refer to
Child of Divorced or Separated Parents
in
Publication 503 ,
Child and Dependent Care Expenses.
A noncustodial parent, however, cannot treat
a child as a qualifying person even if the
parent may claim the child as an exemption.
-
Your spouse who was
mentally or physically not able to care for
himself or herself and who has the same
principal place of abode as you for more
than one-half of the year.
-
Your dependent who was
physically or mentally not able to care for
himself or herself, for whom you can claim
an exemption, and who has the same principal
place of abode as you for more than one-half
of the year.
In addition to the
conditions just described, to take the credit,
you must meet all the following conditions:
-
You must provide the
taxpayer identification number (usually the
social security number) of the qualifying
person.
-
Your filing status
must be a status other than married filing
separate (You must file a joint return if
you are married.)
-
The payments for care
cannot be paid to someone you can claim as
your dependent, or to your child who is
under age 19 even if he or she is not your
dependent.
-
You must report the
name, address, and taxpayer identification
number, (either the social security number,
or the employer identification number) of
the care provider on your return. If the
care provider is tax exempt, you need only
report the name and address on your return.
You can use
Form W-10 (PDF),
Dependent Care Provider's Identification
and Certification, to request this
information from the care provider.
If you qualify for the
credit, complete
Form 1040A, Schedule 2 (PDF), or
Form 2441 (PDF) with
Form 1040 (PDF). If you received dependent
care benefits from your employer (this amount
should be shown on your
Form W-2 (PDF)), you must complete Part III
of Schedule 2 (Form 1040A) or Form 2441. You
cannot use 1040EZ if you claim the child and
dependent care credit.
The credit is a
percentage, based on your adjusted gross income,
of the amount of work–related child and
dependent care expenses you paid to a care
provider. There is a maximum dollar limit of
dependent care expenses you can use for this
credit. The amount of the maximum dollar limit
depends on the taxable year and the number of
qualifying children. These dollar limits must be
reduced by the amount of any dependent care
benefits provided by your employer that you
exclude from your income. Refer to Publication
503,
Child and Dependent Care Expenses,
for additional information.
If you pay someone to look
after your dependent or spouse in your home, you
may be a household employer. If you are a
household employer, you may have to withhold and
pay social security and Medicare tax and pay
federal unemployment tax. For information, refer
to
Publication 926,
Household Employer's Tax Guide, or
to
Topic 756 and
Topic 760
__________________________________________________
Final regs on dependent care credit reflect
law changes and clarify qualifying expenses
T.D. 9354, 08/13/2007 ; Reg. § 1.21-1 ; Reg.
§ 1.21-2 ; Reg. § 1.21-3 ; Reg. § 1.21-4
IRS has issued final regs on the Code Sec.
21 credit for child and dependent care expenses. They reflect
changes made by multiple statutory amendments, going back to the
Deficit Reduction Act of '84 and clarify employment-related
expenses that qualify for the credit. The final regs are
effective Aug. 14, 2007.
Background. An individual
taxpayer for whom there are one or more qualifying individuals—a
qualifying child under age 13, or a dependent or spouse who is
physically or mentally incapable of self-care and who has the
same principal place of abode as the taxpayer for more than half
of the tax year—can claim a credit of 20% to 35% of the
employment-related expenses that the taxpayer paid for the care
of the qualifying individuals. Those expenses can't exceed
$3,000 for one qualifying individual or $6,000 for more than
one. Thus, the maximum credit is $1,050 if there is one
qualifying individual and $2,100 if there are two or more
qualifying individuals. The expenses are subject to earned
income limitations, and must be reduced by amounts excluded from
gross income under a dependent care assistance program. The
credit is lost if proper identification information isn't
provided for the qualifying individuals or for the care
provider.
Proposed reliance regs issued at the end
of May of 2006 reflected the numerous statutory amendments to
the credit as it was originally enacted in former Code Sec. 44,
see Weekly Alert ¶ 17 05/25/2006 . The proposed regs also
renumbered, restructured, and clarified the previous final regs
in Reg § 1.44A-1 through Reg § 1.44A-4 (which are removed by the
new final regs).
Final regs. The final regs adopt
the proposed regs with some modifications and provide a number
of examples illustrating these rules. The final regs incorporate
several changes to Code Sec. 21 . They reflect that the special
dependency rule of Code Sec. 21(e)(5) applies to children of
parents who live apart at all times during the last 6 months of
the calendar year, as well as to the children of separated or
divorced parents. They also reflect the changes made to the
definitions of qualifying individual and custodial parent by the
Gulf Opportunity Zone Act of 2005. In addition, they clarify
that, for tax years beginning after Dec. 31, 2004, costs for
care outside the taxpayer's household of a qualifying individual
who is a dependent or spouse incapable of self-care who
regularly spends at least 8 hours each day in the taxpayer's
household may continue to qualify for the credit. ( Reg. §
1.21-1(b) )
The final regs clarify that only expenses
for the care of a qualifying individual that are to enable the
taxpayer to be gainfully employed qualify for the credit. Thus,
services must be performed before a disqualifying event (e.g., a
child turning 13) and at a time when the purpose is to enable
the taxpayer to be gainfully employed. In determining whether
expenses are employment-related expenses, the time of payment is
irrelevant. However, payment must be made before the credit is
claimed. ( Reg. § 1.21-1(a)(4) )
The final regs retain the rule in the
proposed regs that no allocation as to allowable and not
allowable expenses is required for the cost of a specialty day
camp (i.e., a camp that specializes in a particular activity,
such as soccer or computers), but clarify that expenses for
summer school and tutoring programs are not creditable. Unlike
specialty day camp, summer school and tutoring programs are
indistinguishable from school and are education. ( Reg. §
1.21-1(d)(7) )
Under the proposed regs, the additional
cost of providing room and board for a caregiver over usual
household expenses may be an employment-related expense. The
final regs clarify that an increase in utilities (e.g.,
electric, water, and gas) may be employment-related expenses. (
Reg. § 1.21-1(d)(12) , Ex. 6)
The proposed regs provided that a taxpayer
must allocate the cost of care on a daily basis if expenses are
paid for a period during only part of which the taxpayer is
employed or in active search of gainful employment. However, an
exception to the allocation requirement applied for a short,
temporary absence from work for a taxpayer paying for dependent
care on a weekly, monthly, or annual basis. The final regs
delete the restriction on the exception applying only to
taxpayers who must pay for care on a weekly, monthly, or annual
basis and clarify that only those costs that the taxpayer is
required to pay during the absence qualify for the exception.
The final regs also include a safe harbor that treats an absence
of no more than 2 consecutive calendar weeks as a short,
temporary absence. ( Reg. § 1.21-1(c)(2) )
___________
Here is some further
information from the IRS in 2013 discussing this credit:
Claiming the Child and Dependent
Care Tax Credit
The Child and Dependent Care Credit can help offset some
of the costs you pay for the care of your child, a dependent or
a spouse. Here are 10 facts the IRS wants you to know about the
tax credit for child and dependent care expenses.
1. If you paid someone to care for your child, dependent
or spouse last year, you may qualify for the child and dependent
care credit. You claim the credit when you file your federal
income tax return.
2. You can claim the Child and Dependent Care Credit for
“qualifying individuals.” A qualifying individual includes your
child under age 13. It also includes your spouse or dependent
who lived with you for more than half the year who was
physically or mentally incapable of self-care.
3. The care must have been provided so you – and your
spouse if you are married filing jointly – could work or look
for work.
4. You, and your spouse if you file jointly, must have
earned income, such as income from a job. A special rule applies
for a spouse who is a student or not able to care for himself or
herself.
5. Payments for care cannot go to your spouse, the parent
of your qualifying person or to someone you can claim as a
dependent on your return. Payments can also not go to your child
who is under age 19, even if the child is not your dependent.
6. This credit can be worth up to 35 percent of your
qualifying costs for care, depending upon your income. When
figuring the amount of your credit, you can claim up to $3,000
of your total costs if you have one qualifying individual. If
you have two or more qualifying individuals you can claim up to
$6,000 of your costs.
7. If your employer provides dependent care benefits,
special rules apply. See Form 2441, Child and Dependent Care
Expenses for how the rules apply to you.
8. You must include the Social Security number on your tax
return for each qualifying individual.
9. You must also include on your tax return the name,
address and Social Security number (individuals) or Employer
Identification Number (businesses) of your care provider.
10. To claim the credit, attach Form 2441 to your tax
return. If you use IRS e-file to prepare and file your return,
the software will do this for you.
For more information see Publication 503, Child and
Dependent Care Expenses, or the instructions for Form 2441. Both
are available at IRS.gov or by calling 800-TAX-FORM
(800-829-3676).
Revised:
3/15/2013
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