But the Child and Dependent Care credit is not limited to child care costs. It also can be claimed when you pay for the care of other dependents as they are deemed qualified by the IRS. For example, if you pay someone to look after your spouse or a dependent of any age who is incapacitated because of physical or mental limitations, you might be eligible for this tax break.
Only working taxpayers need apply
Then there's the credit's job catch. You can only claim dependent care that was necessary so that you can go to or look for work.
If you're married, the IRS requires both of you to be employed or seeking a job. The only exception is when one spouse is either a full-time student or is physically or mentally incapable of self-care.
After clearing the employment hurdle, other requirements to claim the credit include:
- A filing status of single, head of household, married filing jointly or qualifying widow or widower with a dependent child. In most cases, married taxpayers who file separate returns cannot claim the dependent care credit.
- The payments for care cannot be made to someone you can claim as your dependent on your return or to your child who is younger than age 19.
If you're filing Form 1040, complete and attach Form 2441 to your return. Form 1040A filers must use Schedule 2. You cannot use Form 1040EZ if you claim the Child and Dependent Care credit.
Identify your caregivers
You also must include on the tax forms the name and taxpayer identification numbers of the caregivers.
If it's a business, the operator can provide you with the employer identification number. You also can use Form W-10, Dependent Care Provider's Identification and Certification, to request this information from the care provider. For individual providers, you generally use the person's Social Security number.
In addition to summer day camp, some care services that are eligible for the credit are:
Care services eligible for credit
- Private home nurses.
- Licensed dependent care centers.
- Nursery school and kindergarten costs. In these cases, if the costs of school are separate from child care expenses, only the child care portion qualifies.
- Household help as long as the services are necessary for the well-being and protection of the qualifying individual.
You might have some additional filing duties related to this credit depending upon who you hire and how you cover the costs.
If you pay someone to come to your home to provide the care, you may be considered a household employer and have to pay employment taxes.
Company benefit considerations
Finally, if you received any dependent care benefits from your employer during the year, you will have to complete Part III of Form 2441 or Schedule 2 to determine the amount of your credit. These amounts are listed in box 10 of your W-2.
Company benefits include money you receive directly from your employer or that was paid by your employer to your care provider. The fair market value of a company-provided day care facility also counts, as does money you put into a flexible spending account to pay care expenses.
For example, if your company provides untaxed dependent care benefits directly to you, those amounts reduce the amount of expenses you can claim. If the company pays you $1,000 for child care costs, you must reduce your credit amount by that payment, so a $3,000 limit now becomes $2,000 to offset the company payments.
In the case of a spending account, if you paid $10,000 for a nursery school to look after your two children while you were at work, $6,000 is the maximum allowable credit amount. But you used $5,000 from your workplace flexible spending account to pay part of those costs, so the account money will reduce how much you can claim toward the child care credit: The $6,000 maximum care expense amount is cut to $1,000.
In both these instances, because the workplace child care assistance is not taxable income to you, you cannot use those amounts to help further cut your tax bill.
More information on the credit is available in IRS Publication 503, Child and Dependent Care Expenses, or chapter 32 of IRS Publication 17, Your Federal Income Tax.