Child and Dependent Care Credit
The child and dependent care creditchild and dependent care creditCredit allowed for the cost of caring for children or dependents when a taxpayer has earned income. provides a tax benefit to taxpayers with dependents who must be provided with care and supervision while the taxpayers work. Taxpayers are allowed a credit for expenses for the care of their children and certain other dependents. To be eligible for the child and dependent care credit, the dependent must either be under the age of 13 or be a dependent or spouse of any age who is incapable of self-care. If a child’s parents are divorced, the child need not be the dependent of the taxpayer claiming the credit, but the child must live with that parent more than he or she lives with the other parent. For example, a divorced mother with custody of a child may be entitled to the credit even though the child is a dependent of the father.
The expenses that qualify for the credit include amounts paid to enable both the taxpayer and spouse to be employed. Qualified expenses include amounts paid for in-home care, such as a housekeeper, as well as out-of-home care, such as a day care center. Overnight camps do not qualify for the credit, nor do activities providing standard education. Day camps such as computer camps, riding camps, and soccer camps do qualify for the credit since they are considered more “fun and games,” than education. Payments to relatives are eligible for the credit, unless the payments are to a dependent of the taxpayer or to the taxpayer’s child who is under the age of 19 at the end of the tax year. To claim the credit, the taxpayer must include on his or her return the name, the address, and taxpayer identification number of the person or organization providing the care.
The credit is equal to a percentage of the qualified expenses. The percentage is based on income and shown in Table 6.4, “Adjusted Gross Income/Applicable Percentage”.
Table 6.4. Adjusted Gross Income/Applicable Percentage
| Adjusted Gross Income | Applicable Percentage | |
|---|---|---|
| Over | But not over | |
| $0 | 15,000 | 35 |
| 15,000 | 17,000 | 34 |
| 17,000 | 19,000 | 33 |
| 19,000 | 21,000 | 32 |
| 21,000 | 23,000 | 31 |
| 23,000 | 25,000 | 30 |
| 25,000 | 27,000 | 29 |
| 27,000 | 29,000 | 28 |
| 29,000 | 31,000 | 27 |
| 31,000 | 33,000 | 26 |
| 33,000 | 35,000 | 25 |
| 35,000 | 37,000 | 24 |
| 37,000 | 39,000 | 23 |
| 39,000 | 41,000 | 22 |
| 41,000 | 43,000 | 21 |
| 43,000 | No limit | 20 |
In determining the credit, the maximum of qualified expenses is $3,000 for one dependent and $6,000 for two or more dependents. Married taxpayers must file a joint return to claim the credit and the qualifying dependent care expenses are applied to the lesser-earning spouse’s income.
Example
If a husband earned $2,000 and his wife earned $24,000 and they spent $2,800 on child care expenses, they could claim a $580 credit ($2,000 × 29%).
A special rule applies when a taxpayer is a full-time student. Full-time students with little or no income are deemed to have earned income of $250 per month for one dependent and $500 per month for two or more dependents for purposes of calculating this limitation. For example, if a taxpayer’s spouse is a full-time student for nine months of the year and has no income, the maximum amount of the qualifying expenses for the care of one dependent is $2,250 ($250 per month × 9 months). The income computed under the special rule is not added to other earned income in determining the applicable percentage.
Example
Alex and Aurora are married and file a joint return. They have one child and pay $3,200 for child care expenses during the year. Alex was a full-time student for 8 months during the year and has no earned income. Aurora earned $26,000. Since Alex has no income, the limitation on the amount of expenses is computed as (8 months × $250) = $2,000. The credit that can be claimed is $580 = $2,000 × 29%.
Go to Publication 17 and read Chapter 32: Child and Dependent Care Credit.
Question and Problem
Which of the following payments does not qualify as a child care expense for purposes of the child and dependent care credit?
Payments to a day care center
Payments to the taxpayer’s brother (22 years old) for daytime babysitting
Payments to a housekeeper who also babysits the child
Payments to the taxpayer’s dependent niece (16 years old) for daytime babysitting
All of the above qualify for the child and dependent care credit.
Calculate the amount of the child and dependent care credit allowed for 2008 in each of the following cases. The taxpayers had no income other than the stated amounts.
Mark and Laura file a joint tax return. Laura earned $26,000 during the year, while Mark attended Western Nevada Community College full-time for 9 months and earned no income. They paid $4,200 for the care of their 3-year-old child.
$__________
Lori is a single taxpayer with two dependent children, ages 8 and 11. She paid $3,000 in qualified child care expenses during the year. Her adjusted gross income (all from wages) for the year is $19,500.
$__________
Lea and Rob file a joint tax return. Lea earned $31,000 during the year, while Rob earned $10,000 from a part-time job. They paid $9,100 for the care of their four children, all under age 13.
$__________
Lisbeth is a single taxpayer who has two dependent children under age 5. She earned $28,500 in wages during the year and paid $7,400 for the care of her children.
$__________
