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The Rules for Deducting Child Care Expenses

by Heather Montgomery

No one wants an IRS agent knocking at the door because you filed the wrong deduction or credit. The IRS has several regulations governing who can claim child care expenses and the amount of the credit, these restrictions range from who qualifies as a dependent to the limits of the credit. Claiming child care expenses can reduce your tax burden, and might even bring you a refund on your tax return; this is something almost any parent can appreciate.

Eligible Tax Filers

According to IRS “Publication 503,” a tax filer who has one or more qualifying dependents that received child care can claim the credit. The IRS defines a qualifying dependent as a child who is under the age of 13, a spouse who is unable to care for himself, or a dependent unable to care for herself and who lived with the tax filer for more than half of the tax year. You can also claim the credit for a person who lived with you for more than half of the year, even if that person is not claimed as a dependent on your return because the individual earned more than $3,800, or filed a joint return with another tax filer, or if another taxpayer claimed you or your spouse as a dependent on another return.

Filing Status Restrictions

To claim the child care credit, the tax filer must file as single, head of household, qualifying widow or widower, or married and filing a joint return according to IRS Publication 503. If you are married and you file a separate return from your spouse, you can only claim the credit if you are legally separated or have been living apart for more than six months and the dependent lived with you for more than half the year, and if you paid more than half the dependent care costs and you pay for more than half of the cost to run your household. The IRS defines costs to run a household as rent, mortgage, property tax and food costs.

Work Requirement

To claim the credit both you and your spouse, if you are filing a joint return, must use the child care either to work or look for work, and you must have earned income in the tax year. If you or your spouse is a full-time student, then the full-time student is not required to earn any income to qualify for the credit. The IRS does place restrictions on the type of expenses you can deduct under the child care credit. For example, if you work only three days a week, but a qualifying person is caring for your child five days a week, you can only claim the entire cost of the week if there is no day-to-day option for day care. If your child care provider offers a day-to-day care option, you must figure your child care expense by including only the actual expense of child care for the days you were working. Overnight camps, child care during volunteer work and a babysitter for a night on the town do not meet the requirements for a child care expense, according to IRS Publication 503.

Provider Restrictions

To claim the credit, you must pay a qualifying provider for the child care. A qualifying provider is someone who you do not claim as a dependent on your tax return. You must also list the name, address and tax identification number or social security number, if available, of the provider on your tax return. A family member can be a qualifying provider, as long as he is not your spouse or child under the age of 19. According to the rules in Publication 503, if you have an in-home housekeeper whose main role is to provide child care -- even if the housekeeper does other household duties -- you can use that expense as a qualifying dependent care cost. The IRS allows you to claim the cost of a preschool or educational center as long as your child has not reached kindergarten age and you were working during the time your child was at school. You can claim expenses you paid to a dependent care center, as long as that center cares for more than six individuals and meets all state and local regulations.

Credit Limits

The amount of the credit you receive cannot exceed the income you earn during the year. If you are married and you file a joint return, the credit cannot exceed the amount of the income received by the lesser-earning spouse. For example, if you earn $18,000 a year and your spouse earns $3,000 a year, your credit cannot exceed $3,000. The IRS limits the child care credit to $3,000 for one qualifying dependent and $6,000 for two or more qualifying dependents. The actual credit will be a percentage of the credit amount based on your adjusted gross income, between 20 and 35 percent.

Considerations

If you make pre-tax contributions to a child care savings account or you receive a child care benefit amount from your employer or a social service, your credit will be reduced by that amount. To file the child care credit you need to file Form 1040, Form 1040A, or Form 1040NR and include form 2441, all available at the IRS website. (Link in Resources).

About the Author

Based in Lakeland, FL., Heather Montgomery has been writing a popular celebrity parenting blog and several parenting and relationship articles since 2011. Her work also appears on eHow and Everyday Family and she focuses her writing on topics about parenting, crafts, education and family relationships. She is pursuing a Bachelor of Science in early education from Fort Hays State University.

Photo Credits

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