In today’s society, two income families are the norm. Both parents have to work to pay the bills. That means the children need to be looked after by a trusted third party. The government wants to reward those dedicated parents at tax time.
Regardless of whether it is by means of a day care center, a family member, a close friend, or a hired nanny, the price of child care is anything but cheap. The child and dependent care credit, however, allows parents and guardians of children to receive money back from the government based on the money they have spent on child care throughout the year.
Parents and legal guardians of children that have had to pay for a child care under the age of thirteen can apply for the child care credit. In order to use a child as a means for application the child must live with you for a minimum of six months of the year.
Only children who are claimed as dependents and tax exemptions on your federal tax returns can be used to apply for the child care credit. In the case of couples with children who are now divorced or no longer living in the same home, only the parent who lives in the child’s primary resident is permitted to claim the tax credit.
Child care credit can not be claimed for private school tuition. This falls in the category of educational concerns and can be deducted there. But, if the child attends after school care at the school, a portion of that expense can be applied to the child care credit.
There is often confusion regarding just how dependent care spending accounts are reported on tax forms. It is important to understand that these spending accounts cannot be used to obtain the child care credit because, even though it is used to pay for the cost of child care, it is tax-free.
If you spend more money than what was originally proportioned in your dependent care spending account, it can be counted towards the child care credit. Parents who do not exceed the limit of these accounts, however, can only apply for the dependent care credit. The credit received will be twenty to thirty-five percent of what was spent.
For parents who have worked hard to pay for their children’s child care, the child care credit is quite beneficial. The money they spend earns them both the child care credit and a child tax credit.
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