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IRS Special Edition Tax Tip 2013-11: Keep the Child Care Credit in Mind for Summer
If you are a working parent or plan to look for work this summer, you may need to pay for the care of your child or children. These expenses may qualify for a tax credit that can reduce your federal income taxes. The Child and Dependent Care Tax Credit is available not only while school’s out for summer, but also throughout the year. Here are eight key points the IRS wants you to know about this credit.
- You must pay for care so you – and your spouse if filing jointly – can work or actively look for work. Your spouse meets this test during any month they are full-time student, or physically or mentally incapable of self-care.
- You must have earned income. Earned income includes earnings such as wages and self-employment. If you are married filing jointly, your spouse must also have earned income. There is an exception to this rule for a spouse who is full-time student or who is physically or mentally incapable of self-care.
- You must pay for the care of one or more qualifying persons. Qualifying children under age 13 who you claim as a dependent meet this test. Your spouse or dependent who lived with you for more than half the year may meet this test if they are physically or mentally incapable of self-care.
- You may qualify for the credit whether you pay for care at home, at a daycare facility outside the home or at a day camp. If you pay for care in your home, you may be a household employer. For more information, see Publication 926, Household Employer’s Tax Guide.
- The credit is a percentage of the qualified expenses you pay for the care of a qualifying person. It can be up to 35 percent of your expenses, depending on your income.
- You may use up to $3,000 of the unreimbursed expenses you pay in a year for one qualifying person or $6,000 for two or more qualifying person.
- Expenses for overnight camps or summer school tutoring do not qualify. You cannot include the cost of care provided by your spouse or a person you can claim as your dependent. If you get dependent care benefits from your employer, special rules apply.
- Keep your receipts and records to use when you file your 2013 tax return next year. Make sure to note the name, address and Social Security number or employer identification number of the care provider. You must report this information when you claim the credit on your return.
For more details about the rules to claim this credit, see Publication 503, Child and Dependent Care Expenses. You can get both publications at IRS.gov or have them mailed by calling 800-TAX-FORM(800-829-3676). Additional IRS Resources:
- Publication 503, Child and Dependent Care Expenses
- Tax Topic 602 – Child and Dependent Care Credit
- Frequently Asked Questions – Child Care Credit
- Publication 926, Household Employer’s Tax Guide
- Publication 907, Tax Highlights for Persons With Disabilities
Who Gets to Claim the Childcare Credit
By Stacie Clifford Kitts, CPA
You might be confused about who can claim the childcare credit……especially if you are divorced, separated, or splitting your dependents between yourself and your ex-spouse. Maybe you are paying the childcare as part of your divorce agreement. But hold on, paying it doesn’t necessarily get you a credit.
Here are some helpful items that will clarify who gets to claim the credit. If you are divorced or separated, pay particular attention to the rules about custodial parents.
Basically you must be the custodial parent to get the credit. This means that your child must have lived with you for a greater number of nights during the year. If each parent had the child for the same number of nights, the parent who makes the most money gets the credit.
So check out this list from the IRS:
- The care must have been provided for one or more qualifying persons. A qualifying person is your dependent child age 12 or younger when the care was provided. Additionally, your spouse and certain other individuals who are physically or mentally incapable of self-care may also be qualifying persons. You must identify each qualifying person on your tax return.
- The care must have been provided so you – and your spouse if you are married filing jointly – could work or look for work.
- You – and your spouse if you are married filing jointly – must have earned income from wages, salaries, tips, other taxable employee compensation or net earnings from self-employment. One spouse may be considered as having earned income if they were a full-time student or they were physically or mentally unable to care for themselves.
- The payments for care cannot be paid to your spouse, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent. You must identify the care provider(s) on your tax return.
- Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
- The qualifying person must have lived with you for more than half of 2010. However, see Publication 503, Child and Dependent Care Expenses, regarding exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. See below for a bit about Child of divorced or separated parents from Publication 503
- The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
- For 2010, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.
- The qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that you deduct or exclude from your income.
- If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For information, see Publication 926, Household Employer’s Tax Guide.
Taken from Publication 530:
Child of divorced or separated parents or parents living apart. Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if:
- The child was under age 13 or was not physically or mentally able to care for himself or herself,
- The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year,
- The child was in the custody of one or both parents for more than half the year, and
- You were the child’s custodial parent. The custodial parent is the parent with whom the child lived for the greater number of nights in 2010. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. For details and an exception for a parent who works at night, see Pub. 501.
The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents.
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IRS Presents: Ten Facts about Claiming the Child Tax Credit
The Child Tax Credit is a valuable credit that can significantly reduce your tax liability. Here are 10 important facts from the IRS about this credit and how it may benefit your family.
- Amount – With the Child Tax Credit, you may be able to reduce your federal income tax by up to $1,000 for each qualifying child under the age of 17.
- Qualification – A qualifying child for this credit is someone who meets the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence.
- Age Test – To qualify, a child must have been under age 17 – age 16 or younger – at the end of 2009.
- Relationship Test – To claim a child for purposes of the Child Tax Credit, they must either be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister or a descendant of any of these individuals, which includes your grandchild, niece or nephew. An adopted child is always treated as your own child. An adopted child includes a child lawfully placed with you for legal adoption.
- Support Test – In order to claim a child for this credit, the child must not have provided more than half of their own support.
- Dependent Test – You must claim the child as a dependent on your federal tax return.
- Citizenship Test – To meet the citizenship test, the child must be a U.S. citizen, U.S. national, or U.S. resident alien.
- Residence Test – The child must have lived with you for more than half of 2009. There are some exceptions to the residence test, which can be found in IRS Publication 972, Child Tax Credit.
- Limitations – The credit is limited if your modified adjusted gross income is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the phase-out begins at $110,000. For married taxpayers filing a separate return, it begins at $55,000. For all other taxpayers, the phase-out begins at $75,000. In addition, the Child Tax Credit is generally limited by the amount of the income tax you owe as well as any alternative minimum tax you owe.
- Additional Child tax Credit – If the amount of your Child Tax Credit is greater than the amount of income tax you owe, you may be able to claim the Additional Child Tax Credit.
For more information, see IRS Publication 972, Child Tax Credit, available at the IRS.gov or by calling 800-TAX-FORM (800-829-3676).
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