Eligibility for Child Care Credit
In today’s society, two income families are the norm. Both parents have to work to pay the bills. That means the children need to be looked after by a trusted third party. The government wants to reward those dedicated parents at tax time.
Child care is expensive. Whether you hire a nanny, utilize a day care center, or have a trusted friend or family member watch your child, the costs can add up quickly. However, some of the money that is used towards child care expenses throughout the year can be credited back to parents and guardians with the child and dependent care credit.
The child care credit can be claimed by qualified parents or guardians that have paid for the care of a dependent child. The dependent child must be under the age of thirteen to be considered for the credit. As a qualified dependent, the child has to have lived with you in the residence for at least half the year.
Only children who are claimed as dependents and tax exemptions on your federal tax returns can be used to apply for the child care credit. In the case of couples with children who are now divorced or no longer living in the same home, only the parent who lives in the child’s primary resident is permitted to claim the tax credit.
Child care credit can not be claimed for private school tuition. This falls in the category of educational concerns and can be deducted there. But, if the child attends after school care at the school, a portion of that expense can be applied to the child care credit.
There is often confusion regarding just how dependent care spending accounts are reported on tax forms. It is important to understand that these spending accounts cannot be used to obtain the child care credit because, even though it is used to pay for the cost of child care, it is tax-free.
If you spend more money than what was originally proportioned in your dependent care spending account, it can be counted towards the child care credit. Parents who do not exceed the limit of these accounts, however, can only apply for the dependent care credit. The credit received will be twenty to thirty-five percent of what was spent.
For parents who have worked hard to pay for their children’s child care, the child care credit is quite beneficial. The money they spend earns them both the child care credit and a child tax credit.