June 27, 2014
For harried parents, the definition of true panic is realizing in April that you forgot to enroll your kids for summer day camp and now all the slots are filled. Cut to: as the school year ends, you're feverishly trying to find adequate daycare because neither of you can take time off work to watch the kids.
I know of one such couple; with any luck you're more organized than they were. In fact, bonus points if you thought ahead and signed up during last fall's open enrollment for a dependent care flexible spending account (FSA), which allows you to pay for childcare using pretax dollars.
But if you didn't enroll in an FSA or your employer doesn't offer them, there's still a way to get a tax break on your summer daycare expenses (and other dependent care costs throughout the year): the Child and Dependent Care Credit. Here's how it works:
If you pay someone to care for your young child (or other qualifying dependents) so you can work – or look for work – you may be eligible for this tax credit worth up to 35 percent of those expenses. Because it's the IRS doling out the credit, there are a number of qualifying provisions:
The maximum amount of expenses that qualify for the Child and Dependent Care Credit is $3,000 a year for one dependent and $6,000 for two or more. If your adjusted gross income is less than $15,000 you generally can claim a credit for 35 percent of eligible expenses. The percentage gradually decreases, the higher your income. It caps out for those earning more than $43,000, who can claim 20 percent.
To learn more about the Child and Dependent Care Credit, see IRS Publication 503 and Chapter 32 of IRS Publication 17 at www.irs.gov.
Bottom line: If you're paying someone to take care of your kids while you're at work, make sure you're taking advantage of the available tax savings.
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This article is intended to provide general information and should not be considered health, legal, tax or financial advice. It's always a good idea to consult a tax or financial advisor for specific information on how certain laws apply to your situation and about your individual financial situation.