Child and Dependent Care Credit: You could be amazed to know that some of the money you spent on childcare expenses can be claimed back from this nonrefundable credit. You can also qualify to claim these funds, provided you should have ever cared for disabled dependents or spouses.
The Requirements to Claim This:
These criterion have to be fulfilled to claim, Child and Dependent Care Credit, all of the stated reasons must be true:
- Both wife and husband should jointly file stating they are married.
- In a marriage, one of the partners should pledge for the responsibility to provide for and even the other partner who is still into the marriage, can work or look for work.
- Either of the partners have some earned income. The married couple staying together, both should have individually earned income. In any case, if one of the partners becomes disabled or turns out to be a full-time student whose classwork is at-least 5 months in a year. In that case, the other partner/spouse becomes eligible to claim the income equivalent to their earned incomes.
- For a child, it comes out to be $250 for a month
- For children who are 2 or more than that, it will be $500 for a month
- A person or persons who receive care and their married partner live in the same house for at least half of the year.
The Person Providing The Care Shouldn’t Be The Following:
- One of the partners
- Legal parent of the child under age 13
- A person who can be termed as dependent
If The Child Is Providing The Care, Then He or She:
- Must be 19 years or older by the end of the year 2019
- Can’t be a dependent of one of the married partners.
For those who are not married jointly, they might still be able to claim the credit if both of the given conditions are true:
- One of the partners paid more than half of the household maintenance. The home was used as the main residence by either of the partners and deserving person for more than half the tax year.
- Importantly the spouse was not part of the house for the last six months of the tax year.
Persons Who Are Termed As Eligible For Child And Dependent Care Credit
To get a certain amount which can fall in the category as qualified expenses, of the married couple, a partner should provide the care for another partner or partners. (Things which fall under qualified expenses are listed below), All those who can be termed as qualifying persons are explained as follows:
- A dependent who is a qualified child should be under the age of 13 when they receive care. For which they have to sufficiently declare that the child is dependent and is ready to receive the credit. However, there is an exception for children of divorced or single parents. In those cases, the custodial parent gets qualified for this credit. The above clause applies for the noncustodial parent who is intending to claim the funds declaring the child as a dependent.
It could be a spouse or dependent who qualifies for these:
- Physically or mentally incapable of self-care
- When they receive the care has the same house as does the legal partner
Qualified Expenses
Qualified expenses enable the users to claim in two different circumstances. They are Dependent on childcare expenses and qualified childcare expenses. This provision only applies when a person is working or looks for work. The main purpose of spending the money must be protection and well-being.
When care is provided away from the home, those expenses are valid here. This is very much valid if the qualifying person comes by your home and stays there at-least for Eight hours in a day.
A dependent care center, who administers care to the qualifying person, has to run by the relevant state and local laws. A dependent care center is defined as the unit which takes care of more than six people for a specified fee.
The cost of taking care at home. This includes expenses for:
- Cooking
- Light housework related to the qualifying individual’s care
- The care itself
For qualified services, gross wages are paid, and also for your services as:
- Social Security
- Medicare
- Federal unemployment taxes
- Other payroll taxes paid on the wages
- Meals and lodging for the employee providing the services
The following expenses don’t qualify for claiming sums under the child and dependent care credit:
- Transportation costs to and from the childcare facility
- Overnight camp expenses
- The cost involved as part of the kindergarten or higher education of a child
- Expenses for chauffeur or gardening services
All the cost that is incurred on programs before- or after-school may qualify if they are aimed for the care of the child. Amount spent on education below kindergarten qualifies, if the costs incurred cannot be separated from the cost of care provided. The dispensed amount also includes the amount spend on nursery school education as well.
How The Child And Dependent Care Credit Is Calculated?
The credit has to be 20%-35% of all qualified expenses. Adjusted gross income (AGI) is a factor which varies the percentage to a large extent. The Child and Dependent Care credit can be calculated on the sum, which is the maximum amount eligible for qualified expenses.
- $3,000 in case of a single person
- $6,000 for multiple qualifying persons
Form 2441 has to be completed: The Child and Dependent Care Expenses form has to be filled and attached along with 1040 to claim the credit.
Benefits Provided By The Employer:
Certain employers provide childcare benefits like:
- employees’ children receive care on-site
- They directly pay the Third-party for providing care
- Designate certain accounts for childcare. Employees can contribute to these accounts form their salaries.
For the value of amount which is less than $5,000 it doesn’t fall under taxable income, but if the value of benefits increases the said value then the employer declares everything over it as the taxable amount.
To benefit their employees some of the employers try to offer their employees Section 125 plans. They are otherwise known as flexible spending accounts (FSAs) or cafeteria plans. So, when they provide this benefit the employees can voluntarily cut down on their salaries, to make sure they get the non-taxable benefits. People can use their common flexible spending accounts to pay medical expenses or childcare.
The amount of child and dependent care benefits provided by the employer will be updated in the W-2 and Box 10. The expenses paid or reimbursed with the said benefits cannot be used to claim the childcare credit. So, the amount obtained from Box 10 has to be subtracted before claiming the Dependent care credit. But if someone’s W-2 shows the presence of dependent care benefits, then they must submit Form 2441 (Form 1040), Part III. This is also applicable to all those who are not claiming a childcare credit.