Child Care Tax Credit: Requirements, Limits and Benefits

0

Jhe child and dependent care credit may be available to you if you pay someone to care for your children or another family member while you are at work.

This credit can reduce your tax liability by hundreds or even thousands of dollars and “returns” to you a percentage of the money you spend on services.

What are the requirements?

You must have “earned income” or money obtained through employment to qualify (along with your spouse, if married). Investment earnings and other non-work related income are not taken into account.

To be able to work or look for work, you must have paid for care. Even if you don’t get paid for it, being a full-time student or a parent who can’t care for themselves counts as “work” for credit purposes.

You must file a joint tax return if you are married.

The person who provided the dependent’s name, address and tax identification number (TIN) must be disclosed. A Social Security Number (SSN) or Employer Identification Number (EIN) serves as a tax identification number. For the number, ask your healthcare professional.

What are the limits ?

As long as the person you paid was not one of the people listed below, you can claim back the money you spent on care.

Your partner (spouse)

You might not receive the credit, for example, if you paid your ex-spouse or ex-husband to care for the children you share together.

People listed as dependents on your tax return

Your own child, whether or not listed as a dependent on your tax return, must be under 18; for example, you cannot pay your 17 year old to look after his eight year old brother and then claim the credit.

What are the benefits?

To help workers with the cost of caring for a disabled child or dependent, the government offers the Child and Dependent Care Credit.

Credit has two main advantages:

Instead of a tax deduction, it is a tax credit. Simply put, a tax deduction reduces the amount of income subject to tax. Depending on your tax bracket, a $1,000 deduction, for example, might only reduce your tax payment by $150 or $200. However, a tax credit directly reduces your taxes, dollar for dollar. Your tax account is reduced by $1,000 thanks to a tax credit of $1,000.

Regardless of your income, you can apply for the credit. Many tax benefits have income restrictions that prevent those who earn more from using them. At higher income levels, the child care and dependent care credit decreases, but still exists.


Source link

Share.

Comments are closed.