Hertsel Shadian, Attorney at Law, LLC

Important Tax Facts About the Child and Dependent Care Credit

1 April 2011

If you paid someone to care for your child, spouse, or dependent last year, you may be able to claim the Child and Dependent Care Credit on your federal income tax return. Below are some important facts to know about claiming the credit for child and dependent care expenses.

  1. 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 also may be qualifying persons. You must identify each qualifying person on your tax return.
  2. The care must have been provided so you—and your spouse if you are married filing jointly—could work or look for work.
  3. To qualify for the credit, you—and your spouse if you file 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 he or she was a full-time student or was physically or mentally unable to care for themselves.
  4. The payments for care cannot be paid to your spouse, to the parent of your qualifying person, 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.
  5. You also must identify the care provider(s) on your tax return—you will need each care provider’s name, address, and taxpayer identification number (either the social security number, or the employer identification number). You can request this information from the care provider with IRS Form W-10, Dependent Care Provider’s Identification and Certification. The care provider’s information, and the dollar amount of the care provided, then is reported on IRS Form 2441, Child and Dependent Care Expenses. (See also the Form 2441 Instructions for additional information on how to complete the Form.) If the care provider is tax exempt, you only need to report the name and address of the care provider on your return. If you do not provide information regarding the care provider, you still may be eligible for the credit if you can show that you exercised due diligence in attempting to provide the required information.
  6. Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child.
  7. The qualifying person must have lived with you for more than one-half of 2010. There are exceptions for the birth or death of a qualifying person, or a child of divorced or separated parents. For more information, see IRS Publication 503, Child and Dependent Care Expenses.
  8. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.
  9. 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 calculate the credit.
  10. 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.
  11. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer and may have to withhold and pay social security and Medicare tax and pay federal unemployment tax. For more information about this withholding and filing requirement, see IRS Publication 926, Household Employer’s Tax Guide.

For more information on the Child and Dependent Care Credit, contact your professional tax advisor or tax preparer, or see the link for IRS Tax Topic 602 and IRS Publication 503, Child and Dependent Care Expenses. You also may download these free publications from the official IRS website at www.IRS.gov or order them by calling 800-TAX-FORM (800-829-3676). Also, for information about the Child Tax Credit (a separate tax benefit available to certain taxpayers with children), see the earlier article, Ten Important Facts about the Child Tax Credit. As with all of these articles, please feel free to forward or share this with others that might benefit from this information.