Reduce Your Clients’ Taxes with the Child and Dependent Care Tax Credit

SOURCE: IRS Tax Tip 2015-36

The Child and Dependent Care Tax Credit can reduce the taxes your clients pay. If your client paid someone to care for a person in their household last year while they worked or looked for work, then read on for 9 facts from the IRS about this important tax credit:

  1. Child, Dependent or Spouse. Your client may be able to claim the credit if they paid someone to care for their child, dependent or spouse last year.
  2. Work-Related Expense. The care must have been necessary so they could work or look for work. If they are married, the care also must have been necessary so their spouse could work or look for work. This rule does not apply if their spouse was disabled or a full-time student.
  3. Qualifying Person. The care must have been for “qualifying persons.” A qualifying person can be their child under age 13. A qualifying person can also be their spouse or dependent who lived with them for more than half the year and is physically or mentally incapable of self-care.
  4. Earned Income.  Your client must have earned income for the year, such as wages from a job. If they are married and file a joint tax return, their spouse must also have earned income. Special rules apply to a spouse who is a student or disabled.
  5. Credit Percentage / Expense Limits. The credit is worth between 20 and 35 percent of their allowable expenses. The percentage depends on the amount of their income. Your client’s allowable expenses are limited to $3,000 if they paid for the care of one qualifying person. The limit is $6,000 if they paid for the care of two or more.
  6. Dependent Care Benefits.  If your client’s employer gives them dependent care benefits, special rules apply. For more on these rules see Form 2441, Child and Dependent Care Expenses.
  7. Qualifying Person’s SSN. Your client must include the Social Security Number of each qualifying person to claim the credit.
  8. Care Provider Information. Your client must include the name, address and taxpayer identification number of your care provider on your tax return.
  9. Form 2441. You file Form 2441 with your client’s tax return to claim the credit.