If you pay for the care of either a child or a dependent, you may qualify for a credit at tax time. Using Form 2441, taxpayers can claim their credit, however there are a variety of requirements you must meet first, so it’s important to understand all the rules.
To claim the credit, you must have hired someone to care for either a dependent or a disabled spouse, and you must have reported income on your return from either self-employment or other earnings.
If you have a dependent child who is less than 13 years old, a disabled spouse, or another dependent that is incapable of self-care, and you incurred expenses for their care while you worked or sought employment. The IRS permits only certain expenses to qualify for the credit, and they must be necessary for you to work.
You can’t include any money paid to another one of your dependents for care, meaning you can’t claim money you paid to your 13-year-old for watching your 6-year-old while you work. However, if your adult child of at least age 19 provides the care you pay for, those expenses can qualify.
The final requirement of the Child and Dependent Care Credit is that you need to report earned income on your return. In the case of married taxpayers who file a joint return, both spouses must report income unless one is disabled.
Earned vs. Unearned Income
The Form 2441 includes a line for you to report income you earned from your employment or self-employment activities.
There’s a select number of cases where you will have earned income from sources that don’t origin ate from your business or job. For example, taxable disability benefits received while on leave from work, or non-taxed combat pay for military service.
Any other forms of income are considered “unearned” for purposes of the credit. This includes pensions, Social Security retirement, unemployment compensation, interest, dividends, and capital gains. If you received only unemployment compensation throughout the year, then you won’t be able to claim the credit for child and dependent care, because you don’t have any earned income for the year.
Form 2441 requires you to list the names of the care providers (whether individual or an organization) to whom you remit payment for service. In addition to their names, you’ll have to supply their address, amount of payments, and either a Social Security number or employer identification number.
Form 2441: Finalizing
Once you’ve filled in the Form 2441, you’ll want to double check it for accuracy and ensure all the information is correct. You’ll need to report information from your tax return to calculate the amount of the credit you can receive. If you receive non-taxed dependent care benefits, whether from a flex spending account, reimbursement from work, or from a daycare facility, you’ll have to report those benefits. Your expenses will be reduced by the amount of contributions you receive. Additionally, your adjusted gross income needs to be listed, as it directly impacts your credit amount.