Small Business Taxes & Management


Child and Dependent Care Tax Credit


Small Business Taxes & ManagementTM--Copyright 2016, A/N Group, Inc.




Tax law provides a credit for child and dependent care expenses. The credit can be as much as $1050 per child, maximum two children for low income taxpayers. The credit percentage drops sharply until it's down to 20% for taxpayers with an AGI of $43,000 or more. Thus, the credit for many taxpayers will be no more than $600 per child with a maximum of two qualifying children resulting in a maximum credit of $1,200. Qualifying expenses limited to $3,000 (one child) or $6,000 two or more children. Worksheets in tax software can provide substantial help.


Qualifying Persons

___ Dependent under age 13 when care provided
___ Spouse physically or mentally unable to care for self; lived with you more than 1/2 year
___ Dependent; physically or mentally unable to care for self
___ Person who would be dependent except for gross income requirement is dependent
___ Physically/mentally unable to care-cannot dress, clean, feed themselves, would injure themselves
___ Partial year qualification
___ TIN of qualifying person
___ Children of divorced or separated parents


Taxpayer's Qualifications

___ Earned income requirement
___ Taxable compensation
___ Election to include combat pay
___ Special rule for student-spouse (full-time) or spouse not able to care for self
___ Full-time student definition
___ Care expense only if allows you (and spouse)to work or look for work
___ Partial year employment
___ Temporary work absence


Qualifying Expenses

___ Day care
___ Dependent care center must comply with all state and local regulations if care for more than six persons; nonprofit no exception
___ Expenses do not include food, lodging, clothing, education, and entertainment (exception for incidental expenses in daycare; not broken out)
___ Nursery school qualifies; kindergarten does not
___ Summer camp qualifies but not if overnight
___ Before- and after-school care
___ Babysitters
___ Household services/housekeeper must be at least partly for well-being of qualifying person
___ Part expenses for work-related/part not, allocation necessary
___ Qualifying expenses of housekeeper-meals and lodging, employment taxes
___ De minimis expenses paid with qualifying
___ Payments to relatives; special rules


Other Points

___ Provider identification (TIN, SSN)
___ Request number on W-10
___ Refusal to provide-attach statement
___ Form 2441; Instructions
___ IRS Publication 503
___ Expenses paid in following year
___ Dollar limit of qualifying expenses
___ Reimbursed expenses
___ Dependent care benefits; W-2
___ Exclusion or deduction; $5,000 ($2,500 married, separate) limit; other limits
___ Marital status; married joint; legally separated; married and living apart


Copyright 2016 by A/N Group, Inc. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional should be sought. The information is not necessarily a complete summary of all materials on the subject. Copyright is not claimed on material from U.S. Government sources.--ISSN 1089-1536

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--Last Update 07/28/16