IF YOU paid someone to care for your child, spouse, or dependent, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Here are 10 tips on claiming a credit for child and dependent care expenses.
• The expense for child and dependent care must be provided for your dependent child age 13 or younger. Expenses for your spouse and certain other individuals who are physically or mentally incapable of self-care may also qualify.
• The qualifying person must live with you for more than half of the year. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents.
• The credit can be up to 35% (was 30%) of your qualifying expenses, depending upon your adjusted gross income.
• You may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit. These amounts were made permanent by ATRA 2012.
• The care must be provided so you or your spouse can work (or look for work).
• You or your spouse must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. You may be considered as having earned income if they were a full-time student or were physically or mentally unable to care for themselves.
• Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
• The payments for care cannot be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
• The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
• If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses.
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Victor Santos Sy, CPA, MBA, provides professional services in accounting and tax controversy including IRS audit defense and offers in compromise. He also advises clients on choices of entity including corporations for small businesses and LLCs for rentals. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation at 704 Mira Monte Place, Pasadena, CA 91101. The firm celebrates its 35th anniversary this year. You may email tax questions to Vic at [email protected]. You are welcome to visit our website for more than 300 tax tips at www.victorsycpa.com.