The Child and Dependent Care Credit is not to be confused with the Child Tax Credit. In fact, the two are quite different. If you are interested in learning more about the Child and Dependent Care Credit, then this article is for you. If you are interested in learning more about the Child Tax Credit, then read more here!
The difference between the Child Tax Credit and the Child and Dependent Care Credit:
The Child Tax Credit is meant to be a form of relief for any parent, working or not. On the other hand, the Child and Dependent Care Credit is meant to help working parents pay for child care while they are not present.
What is the Child and Dependent Care Credit:
The Child and Dependent Care Credit is a helpful refundable tax credit that assists families in paying for childcare. The credit specifically offers relief to parents who pay for the care of a qualifying child while they work or search for work. The amount of eligible expenses that qualify for the credit varies depending on a taxpayer’s income level. There is also a limit on the total dollar amount of expenses that qualify as well.
Important things to note:
- Despite there being no income restriction on claiming this credit, those with lower income levels can claim a higher percentage of eligible expenses.
- In addition to daycare, taxpayers can also claim other expenses, such as babysitters, day camps, and before or after-school programs.
Understanding The Child and Dependent Care Credit:
A taxpayer may be eligible to claim the child and dependent care credit if they paid someone to care for a child under the age of 13. One may also qualify if they paid for the care of a dependent adult, as long as that individual is not capable of self-care and lived in the taxpayer’s home for at least half of the year. When it comes to calculating the credit, taxpayers can include up to $8,000 of eligible expenses if you have one child or qualifying dependent, or up to $16,000 if you have two or more dependents.
The number of eligible expenses that a taxpayer can claim is limited by the amount of earned income they generate from work. For married couples, that limit applies to the amount of income earned by the spouse who makes less money. In most cases, if only one spouse is earning income, then the couple may not claim the credit. Families may also receive up to 50% of those expenses as a refundable credit, depending on income, meaning it may reduce their tax bill or offer a refund regardless of liability.
Claiming the Credit:
To claim the credit, you must submit an IRS Form 2441, Child and Dependent Care Expenses, alongside your 1040 Form. Based on your income, the form will indicate the percentage of the allowable child or dependent care expenses that you are permitted to claim for your credit. Before you follow through with anything, it is helpful to talk about these things with a tax expert. Luckily, CKH Group is here to help. You can book a free consultation with one of our own experts here!
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