If you have young children and work outside the home, school probably occupies your kids during most of the workday during the school year. But what about during the summer? Who looks after them while you're at work? If you find yourself paying for child care, you should know there’s a silver tax lining for these costs. Generally, you should be able to qualify for the child care credit, and the credit may be more widely available than you think.
To qualify for the credit, you must incur expenses of caring for a child under age 13 so you can be gainfully employed. A married couple is treated as being “gainfully employed” if one spouse works full time and the other works either full-time or part-time or is a full time student. A married couple must file a joint return to claim the credit.
The applicable credit is 35 percent of the qualified expenses for taxpayers with an adjusted gross income (AGI) of $15,000 or less. The percentage is reduced by 1 percent for each $2,000 that your AGI increases until it bottoms out at 20 percent. Thus, the credit is 20 perent for taxpayers with an AGI above $43,000.
The credit is available for the first $3,000 of qualified expenses for one child and $6,000 for two or more children. This results in a maximum credit of $600 for one child and $1,200 for two or more children if you have more than $43,000 in AGI.
To claim the credit, the child care expense must be "qualified." While the costs of traditional babysitters, day care centers and nursery schools are qualified expenses, there are other "non-traditional" child care options that also qualify for the credit.
For instance, costs incurred at a municipal pool or country club may qualify for the credit. So can the cost of sending a child to a day camp where recreational activities like swimming, boating or hiking are the focus. Unfortunately, the cost of an overnight camp does NOT qualify. This includes camps run by the Boy Scouts, Girl Scouts or other organizations.
The day camp can even be a “specialty camp” emphasizing a particular skill or other aspect. The full cost of attending the specialty camp is eligible for the credit, but you can’t add on expenses for special equipment, uniforms or supplies.
Don't forget that you'll need specific information from the child care provider to claim the credit on your personal tax return. Be sure to have the provider (or day camp) name, address and taxpayer identification number. Then make sure that Form 2441 (Child and Dependent Care Expenses) is attached to your return.
If you find yourself getting tangled up in how to figure the percentage of credit, your AGI, and what expenses qualify, just breathe! Our job is to take care of calculating all of that for you and filing the correct forms with your return for you to claim the credit. You simply need to know about this credit so you can include these kinds of child care expenses with your year-end tax information.
Get the information from your provider now and put it in your tax file - you'll be one step closer to being ready to file your return for 2018!