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William Byrnes (Texas A&M) tax & compliance articles

10 Tax Facts: Do You Qualify for the Child and Dependent Care Tax Credit To Reduce Your Taxes?

Posted by William Byrnes on April 6, 2014


In Tax Tip 2014-37, the IRS provides ten tax tips for taxpayers that pay for the care of their child or other dependent while they’re at work.  The Child and Dependent Care Credit can reduce that cost of that child care.

10 tax facts from the IRS about this important tax credit

1. A taxpayer may qualify for the credit if the taxpayer paid someone to care for a child, dependent or spouse last year.

2. The care a taxpayer paid for must have been necessary so the taxpayer could work or look for work.  This also applies to the spouse if married and filing jointly.

3. The care must have been for ‘qualifying persons.’ A qualifying person can be a taxpayer’s child under age 13.  Qualifying persons may also be a spouse or dependent who is physically or mentally incapable of self-care. T hey must also have lived with the taxpayer for more than half the year.

4.  The taxpayer and the spouse if file jointly, must have earned income, such as wages from a job.  Special rules apply to a spouse who is a student or disabled.

5. The payments for care can not go to a spouse, the parent of your qualifying person or to someone claimed as a dependent on the taxpayer’s return. Care payments also can not go to a child under the age of 19, even if the child is not claimed as a dependent.

6. The credit is worth up to 35 percent of the qualifying costs for care, depending on a taxpayer’s income. The limit is $3,000 of the total cost for the care of one qualifying person. If the taxpayer pays for the care of two or more qualifying persons, the taxpayer can claim up to $6,000 of the costs.

7. If a taxpayer’s employer provides dependent care benefits, special rules apply.

8. A taxpayer must include the Social Security number of each qualifying person to claim the credit.

9. A taxpayer must include the name, address and identifying number of each care provider to claim the credit.  This is usually the Social Security number of an individual or the Employer Identification Number of a business.

10. To claim the credit, attach Form 2441 to the tax return.

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Due to a number of recent changes in the law, taxpayers are currently facing many questions connected to important issues such as healthcare, home office use, capital gains, investments, and whether an individual is considered an employee or a contractor. Financial advisors are continually looking for updated tax information that can help them provide the right answers to the right people at the right time. This brand-new resource provides fast, clear, and authoritative answers to pressing questions, and it does so in the convenient, timesaving, Q&A format for which Tax Facts is famous.

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