OLT TAX CORNER~ Child and Dependent Care Credit

Child and Dependent Care Credit FAQ
  1. What is the Child and Dependent Care Credit?
  2. My spouse had earned income for a few months at the beginning of the year. I have earned income for the whole year. Can we claim a credit for child care expenses paid while she was out looking for work?
  3. On Form 2441 (Schedule 2), what do I enter under Child and Dependent Care Expenses?


What is the Child and Dependent Care Credit?
The Child and Dependent Care Credit allows taxpayers to claim a credit for expenses paid for the care of children under age 13 and for a disabled spouse or dependent. In order to claim the credit, the taxpayer, child or dependent, and expenses must meet numerous requirements. There is a limit to the amount of qualifying expenses. The credit is a percentage of the qualifying expenses.
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My spouse had earned income for a few months at the beginning of the year. I have earned income for the whole year. Can we claim a credit for child care expenses paid while she was out looking for work?
Yes, as long as you meet all the other eligibility tests to claim the Child and Dependent Care Credit. Since you and your spouse both have earned income during the year, and the expenses you paid were so that she could work or look for work. However the expenses must be prorated if the work test is met for only part of the year.
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On Form 2441 (Schedule 2), what do I enter under Child and Dependent Care Expenses?
Dependent care benefits include amounts your employer paid directly to either you or your care provider for the care of your qualifying person(s) while you worked. These benefits also include the fair market value of care in a daycare facility provided or sponsored by your employer. Your salary may have been reduced to pay for these benefits. If you received dependent care benefits as an employee, they should be shown in box 10 of your Form W-2. Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code N.
A qualifying person is:
  • Any child under age 13 whom you can claim as a dependent (but see Exception for Children of Divorced or Separated Parents). If the child turned 13 during the year, the child is a qualifying person for the part of the year he or she was under age 13.
  • Your disabled spouse who is not able to care for himself or herself.
  • Any disabled person not able to care for himself or herslf whom you can claim as a dependent. But if this person is your child, see Exception for Children of Divorced or Separated Parents.
As for qualified expenses, enter the amounts paid for household services and care of the qualifying person while you worked or looked for work. Child support payments are not qualified expenses. Also, expenses reimbursed by a state social service agency are not qualified expenses unless you included the reimbursement in your income.
Household services are services needed to care for the qualifying person as well as to run the home. For example, the services of a cook, maid, babysitter, housekeeper or cleaning person if the services were partly for the care of the qualifying person. Do not include services of a chauffeur or gardener. You can also include your share of the employment taxes paid on wages for qualifying child and dependent care services.
Care of the qualifying person also includes the cost of services for the person's well-being and protection. It does not, however, include the cost of clothing or entertainment. You can include the cost of care provided outside your dependent under age 13, or any other qualifying person who regularly spends at least 8 hours a day in your home. If the care was provided by a dependent care center, the center must meet all applicable state and local regulations. A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit. You can include the amounts paid for items other than the care of your child (such as food and schooling) only if the items are incidental to the care of the child and cannot be separated from the total cost. But do not include the cost of schooling for a child in the first grade or above. Also, do not include any expenses for sending your child to an overnight camp.
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