School’s out, and for many parents, the real work begins. Juggling work and childcare can get exhausting and expensive. Broussard Poché, LLP wants to get you up-to-date on the child and dependent care credit. This credit will give parents back a portion of the money spent on child care.
The child and dependent care credit is a tax break aimed at working people, keeping them in the workforce, rather than exiting to care for children themselves. Here are a few things to keep in mind:
This is a tax credit, not a deduction. This means a tax credit will directly reduce your taxes; a $1,000 tax credit cuts your tax bill by $1,000.
You can claim the credit regardless of your income. A higher income will mean less of a credit, but the credit is still available.
To qualify, you must have paid someone to care for one or more of the following people:
- A child age 12 or younger at the end of the year whom you claim as a dependent on your tax return
- You (and your spouse, if you’re married) must have earned income.
- You must have paid for the care so that you could work or look for work.
- If you are married, you must file a joint tax return.
- You must provide the name, address and Taxpayer Identification Number (TIN) of the person who provided the care. The taxpayer ID number is either a Social Security number (SSN) or an Employer Identification Number (EIN). Ask your care provider for the number.
The size of your credit depends on how much you spend for child care and how much money you make. In general, it works like this:
- Add up the total amount of your care expenses that qualify for the credit. The maximum amount of care expenses you’re allowed to claim is $3,000 for one person ($6,000 for more than one person).
- If your employer gives you money to pay child care expenses, or if you have money withheld from your pay on a pre-tax basis, you must subtract this money received from your allowable expenses.
- Compare your claimed expenses with your earned income and, if you’re married, your spouse’s earned income. Take the smallest of all these amounts. These are your “allowable expenses.”
- Your credit is a percentage of your allowable expenses. That percentage ranges from 20% to 35%. The higher your income, the smaller your percentage.
A Broussard Poché, LLP professional or your own tax expert can guide you through the forms and paperwork, it can get a little confusing, but it’s worth the potential savings around tax time.