Child care can be expensive, and many parents have to arrange care around their work schedule or school breaks. When children are out of school during the summer, child care expenses can begin to add up. The federal government is stepping in to help by offering a tax credit for child care expenses for any child under thirteen years old. The child must be claimed as a dependent in order to qualify for the exception, and a separate exemption applies to divorced or separated parents.
What Types of Care Qualify?
Day Camps – expenses incurred from sending your child to a day camp may qualify, even if the camp focuses on a specific hobby or sport, such as basketball or art. The day camp must comply with all local and state laws applicable to other dependent care centers. Overnight camps do not qualify.
School Expenses – If your child hasn’t entered kindergarten yet, but has incurred school expenses, you may qualify for the tax credit. Before or after school care expenses for children at the kindergarten level and higher also qualify.
Day Care Center – In order for a day care facility to qualify, they must comply with all local and state laws if they care for six or more children.
In-Home Care – If you pay someone to watch your child in your home, you don’t qualify for the credit. Instead, the person would be considered an employee of yours, to whom you will have to pay payroll taxes and file payroll returns for.
What is the Maximum Qualifying Expenses?
The child care credit falls between twenty and thirty-five percent of your incurred expenses, depending on your annual income. The more you make, the less of a credit. You can expect a tax credit between $600 and $1,050 for one child’s expenses, as you are eligible to claim up to $3,000 of expenses for one year of child care. Two or more children raises the threshold to $6,000 and can reap a tax credit between $1,200 and $2,100. The limit of expenses is $6,000 regardless of how many children are provided care, but it doesn’t need to be equally divided per child.
In order to claim the credit, you will have to provide certain information, including the provider’s name, address, and tax ID number (unless they are an exempt organization, such as a school or non-profit) Without this information you cannot claim the expenses, so be sure to get all the required information before you pay the service.
What about State Credit?
Some states offer a child care credit similar to the federal one. In these cases, you may need to provide additional information, such as a phone number, in order to claim the expenses. If your spouse is a full-time student, and you file a joint return, you may also qualify for the credit. If you are a primary caretaker of a spouse who is physically or mentally incapable of caring for themselves, you may also qualify for the exemption.