Child and Dependent Care Credit

1. Child and Dependent Care Credit

2. Child and Dependent Care Credit • The child and dependent care credit is a nonrefundable credit that allows taxpayers to reduce their tax liability by a percentage of their child and dependent care expenses. The credit may be claimed by taxpayers who, in order to work or look for work, pay someone to care for their qualifying person

3. Child and Dependent Care Credit • The credit can range from 20% to 35% of a taxpayer's qualifying child or dependent care expenses. The percentage is based on the taxpayer's earned income and adjusted gross income. The amount of the credit cannot be more than the amount of income tax on the return

4. Credit Limit • One child $3000 credit limit • Two or more $6000 credit limit

5. Child and Dependent Care Credit • Tests: • Qualifying Person • Earned Income • Work related • Joint return • Providers information

6. Qualifying Person • Spouses who were physically or mentally unable to care for themselves and lived with the taxpayer more than half the year. • Someone who was physically or mentally incapable of self-care whom the taxpayer claims as a dependent or would have been your dependent except that: • He or she received gross income of $3,800 or more, • He or she filed a joint return, or • You, or your spouse if filing jointly, could be claimed as a dependent on someone else's return. • Note. If you are divorced or separated, see Child of divorced Child who was under the age of 13 when the care was provided. If the child is being claimed as a dependent by the noncustodial parent under the special rules for children of divorced and separated parents, only the custodial parent may treat the child as a qualifying person for this credit.

7. Earned Income • To qualify for the credit the taxpayer, and spouse if married filling jointly, must have earned income during the year. • Wages • Salaries • Tips • Other taxable employee compensation • Net earnings from self-employment • Strike benefits • Disability pay reported as wages

8. Earned Income • If the taxpayer or spouse is a fulltime student or is unable to care for themselves than they are considered to have earned income of $250 a month for one qualifying dependent and $500 for 2 or more. • If both are fulltime students or unable to car for themselves in any given month only one is considered to have earned income.

9. Work Related • The expenses allow the taxpayer (and spouse if married) to work or look for work • The expenses are for a qualifying person's care, and to provide for that person's well-being and protection For married taxpayers, generally both must work or be looking for work. Taxpayers' spouses are treated as working during any month the spouses were full-time students or were unable to take care of themselves.

10. Qualifying Expenses • Qualify • Cost of care outside the home for dependents under 13; for example, preschool or home daycare, before- or after-school care for a child in kindergarten or higher grade • Cost of care for any other qualifying person; for example, dependent care • Household expenses that are at least partly for the well-being and protection of a qualifying person; for example, the services of a housekeeper or cook • Does not Qualify • Expenses for care cannot include amounts paid for food, clothing, education, or entertainment • Education, for example expenses to attend kindergarten or a higher grade • The cost of sending a child to an overnight camp • The cost of transportation not provided by a care provider

11. Qualifying Expense Example • Qualify • Marina and her husband both work from 9am-5pm. Marina’s daughter Janet attends First Start Kindergarten from 8:30am-12:00pm. Afterwards Marina’s mother pick up Janet and cares for her until her parents pick her up. • Does not Qualify • Marina’s husband works 9am-5pm. Marina’s daughter Janet attends First Start Kindergarten from 8:30am-12pm. Marina volunteers at the local church during the time her daughter is at kindergarten.

12. Payments • Payments cannot be made to a dependent • Payments cannot be made to the spouse or parent of the child • Payments cannot be made to an individual under the age of 19 • Payments can be made to relatives as long as they are not claimed by the taxpayer

13. Joint Return (married couples) • Taxpayer that are married must file MFJ unless: • Legally separated on the last day of the tax year, or • Living apart from their spouses for the last six months of the year and paid more than half of the cost of providing a home, which was also the main home of the qualifying person, for more than half the year

14. Provider Information • Providers: • Name • Address, • Taxpayer Identification Number (TIN) of the person or organization who provided the care for the child or dependent. • If the care provider is an individual, the TIN is the social security number or individual taxpayer identification number. If the care provider is an organization, then it is the Employer Identification Number (EIN). • Taxpayers who are unable to provide this information or who have incorrect information may still be able to take the credit if they can show they used due diligence to obtain the correct information

15. Form 2441

16. Form 2241 • Part I is for general information about the care provider • Part II is where the credit for child and dependent care expenses is calculated • Part III is where employer-provided dependent care benefits are reported

17. Reimbursement Accounts • Some taxpayers receive dependent care benefits from their employers, which may also be called "flexible spending accounts" or "reimbursement accounts." Taxpayers may be able to exclude these benefits from their income. Employer-provided dependent care benefits appear on the taxpayer's Form W-2, box 10. • Because the child and dependent care credit is a nonrefundable credit, only taxpayers with taxable income can claim the credit. However, all taxpayers who receive employer-provided dependent care benefits are required to complete Form 2441, Part III, to determine if they can exclude all or part of these benefits from their taxable income.

18. Reimbursement Accounts

19. Out of VITA Scope • Taxpayers who need assistance in determining if employment taxes are owed for household employees

20. Test your Knowledge • Jane, a stay at home mom, has a 7 year old son named Tim. She has remarried and and lives with her husband John. John pays $300 a month for Tim’s after school program. John’s employer reimburses John $1200 a year for dependent care costs. If Jane and John file MFJ what is their qualifying expense? • A) 0 • B) $2400 • C) $3600 • D) $900