Are you a working parent paying to put your child in daycare?
If so, did you know there’s a credit for child care expenses that could lower your taxes?
The average annual cost of care for an infant in a child care center in Arizona is $9,993, almost as much as college tuition at a four year college! The Child and Dependent Care Credit (a credit against your federal income taxes) can provide some tax relief for these expenses. If you paid someone to care for a qualifying individual so that you (and your spouse, if filing a joint return) could work or look for work and you (and your spouse) have earned income (there are exceptions for full-time students and incapable spouses), then you may be able to claim this credit.
A qualifying person is your dependent child age 12 or younger at the time the care is provided, or your spouse or other certain individuals who are physically or mentally incapable of self-care. The qualifying individual must have lived with you for more than half the year, with some exceptions. The care for this individual can be provided either in or outside of the household and the expenses must primarily be for the well-being and protection of the individual. Additionally, you must reduce the expenses by any amount of dependent care benefits provided by your employer that you exclude from gross income. You may use up to $3,000 of expenses paid in the year for one individual or $6,000 for two or more individuals to figure the credit.
Whether you are using an individual care provider or a care center for the care, you must provide the name, address, and taxpayer identification number (either SSN or EIN) of the provider on your tax return. If you pay someone to come to your home for the care, you may still get the credit, but also be a household employer – see Publication 926, Household Employer’s Tax Guide, for more details or call us. Additionally, the care provider cannot be your spouse, the parent of your qualifying individual, someone you can claim as your dependent, or your own child who will not be age 19 or older by the end of the year.
The credit can be up to 35% of your qualifying expenses depending on your adjusted gross income; the credit is claimed on Form 2441 (a form in your tax return). Note that this credit cannot be claimed if you are married and filing separate returns. For questions or to see if you qualify for this credit, please call our office and we will be happy to assist you further.