Parents and caregivers are all too familiar with the financial challenges surrounding child and dependent care. You have to work in order to earn money to live on, but, because you’re working, you then also have to pay someone else to take care of your dependent(s). It’s a difficult situation, especially considering how expensive childcare can be!
On the upside, the U.S. government recognizes that parents and caregivers who work are faced with this catch-22. In order to balance the scales a little better, the IRS offers a tax credit for some child and dependent care expenses. As you would expect from the IRS, though, there are several rules and regulations surrounding this credit and who can claim it.
To claim this credit, you must have incurred care expenses for a qualified person. In general, a “qualified person” is defined as a child under the age of 13 or a spouse or dependent who is unable to physically or mentally care for him- or herself.
Earned Income Requirement
You also need to have earned some income during the tax year in which you claim the credit. If you haven’t earned any money, they IRS won’t give you money back in the form of a credit.
To claim this credit you must have incurred care expenses in order to go to work or look for work. If you pay a babysitter so that you can have a date night, that’s not a work-related expense. If you pay a daycare provider to care for your child while you go to the office, however, that’s definitely a work-related expense.
(Not) All in the Family
There are lots of IRS rules about paying family members to care for other family members. In this case, you can’t claim this credit if you:
- Pay another dependent (like an older sibling) to provide care
- Pay your spouse to provide care
- Pay the parent of your child (whether or not you are married or live in the same household) to provide care
If you meet these core requirements, you can most likely claim this credit. Be aware, though, that there are numerous other rules around this, and other, tax credits. It’s advisable to consult a tax professional before you claim any new credits to ensure you’re getting the maximum benefit possible without putting yourself in danger of an audit or a tax penalty.
The team at Taxation Solutions, Inc. is here in Arlington to help you navigate this and other tax credits and to provide robust tax guidance throughout the year. Call us today to find out how we can help guide your tax planning and filing processes for a maximum return and total peace of mind.