A Tax Credit to Remember for the Summer – The Child and Dependent Care Credit

Now that school is out if you are a working parent you may have to pay for the care of your child during the time you are working. These expenses may qualify for the child and dependent care credit which can reduce your federal income taxes. This credit is available not only during the summer but throughout the year. The pertinent facts concerning this credit are:

• You and if applicable your spouse must have earned income. Earned income includes wages and self-employment. An exception would be a parent who is a full-time student or who is mentally or physically incapable of self-care.
• You must pay for the child or dependent care so you are able to work or look for work.
• The care must be for one or more qualifying persons such as a child under the age of 13 who you claim as a dependent or a spouse or dependent who is mentally or physically incapable of self-care and lived with you more than half the year.
• The care may be provided at a daycare facility outside your home, at a day camp or at your home.
• The credit may be up to 35 percent of your qualified expenses depending on your income.
• You may use up to $3,000 of the unreimbursed qualified expenses you paid for one qualifying person or up to $6,000 for two or more qualifying persons.
• Expenses which do not qualify include: overnight camps, summer school tutoring, care provided by your spouse or an individual you can claim as a dependent. Special rules apply if you receive dependent care benefits from your employer.
• When claiming this credit, you must have the full legal name, address and Social Security number or employer identification number of the care provider as well as receipts or records of the payments.

This credit helps to offset the cost involved in caring for your child while you work but you must maintain accurate records. A file or folder is useful to keep the record in one location until needed for your income tax return. This organization might take a few minutes  on a weekly basis but should certainly save you time and avoid frustration at tax time!

Submitted by Kathryn Shrader, Postema Accounting Solutions