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Understanding the Child and Dependent Care Tax Credit

IRS Tax Tip 2017-28, March 13, 2017                                                                 Español

The IRS urges people not to overlook the Child and Dependent Care Tax Credit. Eligible taxpayers may be able claim it if they paid for someone to care for a child, dependent or spouse last year.

Taxpayers can use the IRS Interactive Tax Assistant tool, Am I Eligible to Claim the Child and Dependent Care Credit?, to help determine if they are eligible to claim the credit for expenses paid for the care of an individual to allow the taxpayer to work or look for work.

Eight other key points about this credit include:

1.     Work-Related Expenses. The care must have been necessary so a person could work or look
        for work. For those who are married, the care also must have been necessary so a spouse
        could work or look for work. This rule does not apply if the spouse was disabled or a
        full-time student.

2.     Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can
        be a child under age 13. A qualifying person can also be a spouse or dependent who lived with
        the taxpayer for more than half the year and is physically or mentally incapable of self-care.

3.     Earned Income. A taxpayer must have earned income for the year, such as wages from a job.
        For those who are married and file jointly, the spouse must also have earned income. Special
        rules apply to a spouse who is a student or disabled.

4.     Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of
        allowable expenses. The percentage depends on the income amount. Allowable expenses are
        limited to $3,000 for paid care of one qualifying person. The limit is $6,000 if the taxpayer
        paid for the care of two or more.

5.     Dependent Care Benefits. Special rules apply for people who get dependent care benefits
        from their employer. Form 2441, Child and Dependent Care Expenses, has more on these
        rules. File the form with a tax return.

6.     Qualifying Person’s SSN. The Social Security number of each qualifying person must be
        included to claim the credit.

7.     Care Provider Information. The name, address and taxpayer identification number of the care
        provider must be included on the return.

8.     IRS Free File. Taxpayers are encouraged to use IRS Free File to prepare and e-file their
        federal tax returns, including Form 2441. Free File is easy, fast and available only
        at IRS.gov/freefile.

Taxpayers who pay someone to come to their home and care for their dependent or spouse may be a household employer and may have to withhold and pay Social Security and Medicare tax and pay federal unemployment tax. See Publication 926, Household Employer's Tax Guide.

Taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.
 

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Page Last Reviewed or Updated: 13-Mar-2017