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The Child and Dependent Care Tax Credit – Federal Tax Deductions for Child Care Expenses

By Kira Botkin

childcare expenses paintingFinding the right person or company to care for your child or disabled spouse is difficult, and paying for it can become very expensive.

Fortunately, you can get a break on these expenses by filing for the child and dependent care tax credit.

And depending on your income and how many people need care, you can get up to a $2,100 credit. Below is more information regarding the credit, including who qualifies as someone who needs care, what kind of expenses count, and who can claim the tax break.

Who Qualifies as a Person Who Needs Care?

In order to be eligible, the person who needed the care can fall into one of four categories:

  1. A qualifying child who was 12 years old or younger at the time that they received the care.
  2. Your spouse, who lived with you for at least half the year, and is not physically or mentally able to care for themselves.
  3. A dependent of yours, other than a child, who lived with you for at least half the year, and is physically or mentally unable to take care of themselves.
  4. Someone who is unable to care for themselves and lived with you for more than half the year, and otherwise would qualify to be your dependent, save for the fact that they had too much income, were someone else’s dependent, or filed a return as married filing jointly.

In general, you can claim the credit on expenses paid for someone who is your child (12 years old or younger) or otherwise dependent on you if they are 13 or older and were not able to care for themselves.

What Kind of Care Expenses Count Towards the Credit?

Amounts you pay for daycare, a nanny, boarding at your child’s school, after-school care, day camp, or a home aide can be counted as expenses. However, you are not permitted to claim any amounts towards the credit that you paid to someone who is your dependent, your spouse, the child’s other parent, or another of your children who is 18 or younger. You must also subtract any amount of money that you were given by your employer as a benefit from your total expenses.

You are permitted to claim up to $3,000 in expenses if you have one person who qualifies for care and up to $6,000 if you have two or more. However, these do not have to be split evenly. For example, if you have one infant and one eight-year-old child who both went to daycare, the infant’s care may cost more half of the $6,000, and you can still use all of those expenses towards your credit.

Who can Claim this Credit?

You may only claim this credit if you needed someone else to provide care for this person because you were working or looking for a job. If you file as single, head of household, or qualifying widower, you must have some earned income (wages, salary, tips, or self-employment income), have been a full time student, or were unable to care for yourself.

If you file as married filing jointly, you both must either have earned income or have been a student or unable to care for yourself. If one spouse had no earned income, wasn’t looking for work, wasn’t a student, and was able to care for themselves, you cannot claim the credit since it is assumed that that spouse should have been caring for the person instead of paying someone else to do so (e.g. stay at home mom). You cannot claim this credit if you file as married filing separately.

How Big of a Tax Credit can I Get?

You can receive up to 35% of your expenses, and the expenses that you can get that percentage on are capped at $3,000 for one qualifying person or $6,000 for two or more. The percentage goes down as your earned income goes up.

Also, you cannot claim expenses that exceed either your or your spouse’s earned income for the year (if one of you was a student or disabled, only the person who had earned income would count in this instance). For the purposes of the form, your earned income is the same as your adjusted gross income (line 38 on your 1040). If you are filing jointly, the AGI includes both of your incomes. The percentage goes down to 20%, but you can still claim at least 20% on $3,000 or $6,000 worth of expenses no matter how high your income is.

Below are the percentages of expenses that apply for the tax credit based on your earned income.

  • $0 – $15,000 35%
  • $15,000 – $17,000: 34%
  • $17,000 – $19,000: 33%
  • $19,000 – $21,000: 32%
  • $21,000 – $23,000: 31%
  • $23,000 – $25,000: 30%
  • $25,000 – $27,000: 29%
  • $27,000 – $29,000: 28%
  • $29,000 – $31,000: 27%
  • $31,000 – $33,000: 26%
  • $33,000 – $35,000: 25%
  • $35,000 – $37,000: 24%
  • $37,000 – $39,000: 23%
  • $39,000 – $41,000: 22%
  • $41,000 – $43,000: 21%
  • $43,000 – No Limit: 20%

How Do I Claim the Credit?

You will need to complete Form 2441. You must also use Form 1040 or 1040A – you can’t use form 1040EZ to take this credit. If you received any dependent care benefits from your employer, you will need to complete the entire form, including part 3 on the second page. If you did not receive any dependent care benefits you can just complete the first page with parts 1 and 2. You’ll need to provide the name, social security number or EIN, and address of anyone that you paid to provide care. Most nursery schools, daycares, or other childcare institutions will be able to provide you this information, as well as a total of what you’ve paid to them over the year. For more detailed instructions, such as how to complete the form if one spouse is a full time student, see the Form 2441 instructions.

Have you claimed the child and dependent care tax credit? Do you have any suggestions or tips on how to identify which circumstances qualify for this credit?  Let us know in the comments section below.

(photo credit: Shutterstock)

Kira Botkin
Kira is a longtime blogger and serial entrepreneur who enjoys gardening, garage sales, and finding stray animals. She lives in Columbus, Ohio, where football is a distinct season, and by day runs a research study for people with multiple sclerosis. She hopes that the MoneyCrashers team can help you achieve your goals and live a great life.

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  • Matt Jones

    If I read and understood the qualifications to receive the child tax credit correctly, my son, who was born on 8.23.11, would not qualify for the tax credit this year because he did not live with us for a full six months in 2011. Is this correct? Thanks in advance.

    • Kira Botkin

      If you’re looking at the four categories, the person receiving the care only has to fall into ONE of the categories, and it sounds like your son would fall under the first category.

  • Paul Roth2

    Any child born at anytime during 2011 is considered living with you for the full year. Even if he was born in december 2011

  • Michelle

    If I claim the child tax credit on my W-4 is it going to reduce whay I can claim when I file taxes next year?? Does it affect my possible refund?
    Thanks.

    • Kira Botkin

      Yes, it will reduce your refund, but it will make each of your paychecks bigger. The idea is that if you know you’re going to get the child tax credit, you already know that you don’t have to pay as much in taxes because you get the credit, so you pay less in taxes throughout the year, instead of paying more through the year and then getting more back. It’s up to you whether you want to get more money in each paycheck or whether you want to get a bigger refund – the math will come out the same either way.

  • Carrie

    Can I get the child tax credit if I have one child and another on the way (will be born in November 2012) and have been unemployed all of 2012? If so how much would I be eligible to receive??

    • Kira Botkin

      What is being discussed in this article is the “child and dependent care tax credit” which gives you a credit back for costs like daycare, and no you cannot deduct those if you weren’t working. But the “child tax credit” is different than the “child and dependent care tax credit”, which is a flat $1000 credit per child. As long as the baby gets here by the end of 2012 you get the full credit for them for the year. How much your refund would ultimately be depends on how much you owe in other taxes – if you’ve been getting unemployment and have had taxes withheld from your check, you’ll probably get most of it.

  • VT

    I did a calculation for my 2012 taxes. It states that I can’t receive a child tax credit. My income was 5091. for the year. Fed taxes were 34.00. Why can’t I receive the credit? I have a 2 year old son that lived with my the entire year as a dependent.

    • Kira Botkin

      This article is about receiving a tax credit for the amounts you spent on childcare. It is not the same as the child tax credit. The article for that is here: http://www.moneycrashers.com/claiming-child-tax-credit-eligibility/

      You don’t qualify to receive the child tax credit because it is a non-refundable credit – ie you can only use it to offset taxes you paid, you can’t get more back than you paid in taxes. If your income was $5,091 for the year and you are a head of household, you did not pay any federal taxes.

  • William

    Your five criteria (for qualifying for a child tax credit) don’t say that you and the child must have lived IN THE U.S. for at least six months out of the year. I was doing Ph.D. research for 9 months out of the year in India and Pakistan–WITH my family. We got back in October. As such, the over $5000 that we would have qualified for is not longer mine to claim…right?

    • Kira Botkin

      I don’t see any requirements that the child had to be in the US at the time, though there is other documentation suggesting they must be a US citizen in order to be a qualifying dependent. However if you only have one child, you can only use up to $3,000 worth of expenses, and the percentage of that $3,000 that you will actually get as a credit varies by your income. You may also run into some issues if you were paid by an institution in India or Pakistan and not the US.

  • Tracy

    If a child were born to parents whom both signed the birth certificate but the parents do not live together and the child lives with the mother. The father sees the child often but no formal arrangements have been made thru child support for support or visitation. Can the father claim the child or is the mother entitled? we live in Ohio also.

    • Kira Botkin

      If the father doesn’t live with the child, doesn’t provide child support, and doesn’t have any formal written arrangement about who will get to deduct the child, he really has no leg to stand on to try to claim the child. The mother is the only one who can claim the child.

  • Dan

    I have 2 children why is it that 1 is eligible and 1 is not eligible for the child tax credit. both are under the age of 17 both live with me for 12 months. I am married filing jointly and make less than 110,000.

    • Kira Botkin

      Again, this article is about the deduction you can take for expenses related to caring for your children, not the actual child tax credit. You have not given me any reason why one child would be eligible and not the other for the child tax credit, but there are many reasons why one child and not the other would be eligible to have their daycare expenses deducted.

  • DD

    Some of what I am reading on tax law seems to contradict some other things that I am hearing/reading.

    My wife and I are in a bit of a pickle. We have been filing jointly for the last 3 years and now her student loans have been due and are costing us around $800/month. This is way more than we can handle and definitely puts a damper on any kind of a legitimate short-term(possibly long-term) plans on buying a house and other things.

    We have two children, one is 3 years old, and one was born in 2012. Normally we would claim them jointly and basically get around a $2000 overall Child-Tax Credit.

    In speaking with a student loan agent, we have been told that if we file separately, and that my wife states that she has two children and is an Educator, she can qualify for a 10-year forgiveness for her student loan at a monthly rate of: $250/month. (MAJOR DIFFERENCE FROM $800/month)

    Question is: Can either one of us claim any kind of tax credit for having these two children or do we lose any tax advantages for having children at all? Couldn’t one parent filing separately take advantage of the Child-Tax credit based on their sole income?

    I hope this makes sense. Thank you so much for offering to assist with this.

    • Kira Botkin

      If you file as married filing separately, you do not get to use the child tax credit. You can still get the child CARE tax credit which is what this article is about.

      I would clarify with the agent whether she has to continue filing separately every year in order to continue getting the lower rate – having your student loan forgiven is very rare so I am assuming you mean she would just be required to pay $250, not that she would have any of her balance forgiven. If some of the balance is indeed being forgiven that would change the equation.

      If she only has to file separately this year, and would then receive the lower payment after that without having to file separately, that sounds like a good deal. If she has to file separately for all ten years, you are going to lose a lot of money on your taxes. When you file separately you lose the child tax credit and Earned Income Tax Credit, and you also lose being able to deduct student loan interest.

      If there are no other options – hardship deferments, income sensitive repayments, consolidating the loans with someone who will do income sensitive repayments, etc – then one year doesn’t sound too bad but ten years of filing separately might get painful.

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