CHILD AND DEPENDENT TAX CARE CREDIT
My husband and I both work, and we pay for daycare for our
11-year-old son and our 8-year-old daughter. Do we qualify for any tax breaks?
The child and dependent care tax credit benefits families
who, in order to work or look for work, pay someone to care for a dependent
child under age 13. The credit also covers care of a spouse or a dependent of
any age who is physically or mentally incapable of self-care.
My sister watches my children in the daycare center she
runs out of her house. Can I still take advantage of the child and dependent
care tax credit?
Almost any type of care qualifies for the credit, regardless
of whether it is provided in your home, the residence of a care provider, or at
a daycare center or child-care facility. However, no credit is allowed for the
expense of sending a child or another dependent to an overnight camp. In
addition, the caretaker cannot be someone you can claim as your dependent, or a
son or daughter under age 19 at the end of the year.
How much is the child and dependent care tax credit worth?
The child and dependent care credit is a percentage, based
on your adjusted gross income (AGI), of the amount of work-related child-care
expenses you paid during the year. In general, the higher your child-care
expenses and the lower your income, the larger your tax credit. You may take
the child and dependent care credit even if you do not itemize your deductions.
There is a dollar limit on the expenses toward which you can
apply the credit. For 2009, maximum
qualifying expenses for the child and dependent care credit is $3,000 for
taxpayers with one qualifying individual and $6,000 for taxpayers with two or
more qualifying individuals. The
percentage of the expenses you can take ranges from a low of 20 percent to a
high of 35 percent of expenses paid during the year, depending on your AGI.
Who is eligible to claim the child and dependent care tax credit?
To be eligible to claim the tax credit, you (and your
spouse, if you are married) must have paid more than half the cost of
maintaining the home in which you and the child or dependent lived. Eligible
expenses are also limited by your earned income. In the case of a married
couple, both spouses must have earned income from wages, salaries, tips, etc.,
unless one spouse is a full-time student or is physically or mentally incapable
of self-care. The earned income of you or your spouse, whichever is lower,
determines the maximum amount of expenses eligible. Finally, the credit cannot
be claimed by anyone using the married, filing separately status.
I pay for my daycare with money from my Flexible Spending
Account. Do I still qualify for the child and dependent care tax credit?
You cannot use both the tax credit and a dependent care
Flexible Spending Account (FSA) for the same expenses. If you receive
employer-provided dependent care benefits, the amount must be subtracted from
the child-care expenses claimed under the credit. If in 2009, you use a reimbursement account to
pay for $3,000 of the cost to care for two children, you may be eligible for a
tax credit of $3,000 based on the difference between your FSA contribution and
the maximum tax credit for which you qualify. The amount of any
employer-provided dependent care benefits should be shown in Box 10 of your W-2
form.
How do I claim this credit on my taxes?
If you qualify for the child and dependent care credit, you
must file either Form 1040 or Form 1040A. If you’re filing Form 1040, complete
and attach Form 2441 to your return. Form 1040A filers must use Schedule 2. You
cannot use Form 1040EZ if you are claiming the child and dependent care
credit.
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 American Institute of Certified Public Accountants |
 Texas State Board of Public Accountancy |
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Tax
