Child and Dependent Care Tax Credit: Help for Families

For many families, the expenses related to the care of an adult disabled dependent can be some of the most difficult to tackle. Since this type of care is a necessity for so many families for parents to work or go to school, it’s one that must be accounted for and planned around. Fortunately, when you file your taxes, you’ll find some tax laws that provide some relief for families with these lofty care expenses. If you pay for the daily care of an adult disabled dependent of any age, you may qualify for a federal tax credit up to 35 percent of your expenses, with certain limits applied under the Child and Dependent Care Tax Credit.

What are the Terms of the Child and Dependent Care Tax Credit?

To qualify, your adult dependent child must not be capable of being left alone because he or she is unable to care for themselves independently. Additionally, the parent or parents must have worked and earned income.

The care being provided for your adult disabled child must be for the parent or parents to work, pursue employment, or to be enrolled in school full-time. You must also show that your spouse is unable to provide this care; meaning, if you are married, your spouse must also be either working, looking for work, or in school full time. Like you, your spouse would need to have earned income to qualify, unless he or she is disabled and not able to provide the care themselves.

Does my Adult Dependent Son or Daughter Fit the Criteria?

Your child must be physically or mentally unable to care for himself because he or she is deemed disabled. You can claim expenses for adult day care if the dependent is aged 13 and over. It should be noted that you cannot claim adult day care costs if he or she does not live with you for at least half of the year and if you are not paying more than half of the expenses of maintaining the home. For example, in a situation where the parents of a dependent adult are divorced, the custodial parent is the only one who can claim the child care credit due to the residency requirement.

Who Qualifies as a Daycare Provider?

It’s essential to be sure you select someone or somewhere that is approved to provide the care that your adult dependent requires. First, you cannot have another of your dependents provide care for another of your dependents. For example, you could not use payments made to your daughter to take care of her disabled brother in the calculations for the credit, with the exception of your daughter not being a dependent and turning 19 by the end of the year that you are calculating assessing. You also may not use payments made to the other parent of the qualifying child or your spouse in the calculations for the credit.

Daytime camps will qualify as providers of care, but overnight camps do not meet the criteria for the credit. Daytime care, according to the IRS, qualifies because it is to allow parents to go to work or school during the day.

How Much Is the Child and Dependent Care Credit Worth?

The tax credit for dependent care is a percentage of your care expenditures up to $3,000 in the case of one dependent and $6,000 for two or greater dependents. Keep in mind that these numbers do not equal the amount of your credit. Your credit is the qualifying percentage of these numbers. For example, if you were to spend $10,000 during the year for the care of two children so you can go to school full time, the credit you would receive would only apply towards the qualifying percentage of the initial $6,000.

How Does the IRS Calculate the Credit?

Your earned income and the income of your spouse, if you’re filing jointly, play a part in determining what your credit will be. For example, if you only earned $4,000 during the year, you can only claim $4,000 even if your daycare expenses were $7,000. The number is derived from what your costs were or what your income was, whichever number is less. Also, if you receive dependent care benefits through your employer, you must deduct that amount from your calculated daycare expenses.

The range of your dependent care credit is from 20% to 35% of the amount of your expenditures up to the limits of $3,000 or $6,000. The percentage will vary based on your adjusted gross income (AGI). While there is not an income limit to qualify to receive the credit, the rate decreases in increments of 1% as your income levels rise.

You can file for the Child and Dependent Care Tax Credit by submitting IRS Form 2441 with your Form 1040 or 1040 NR.

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