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Paying for day care is one of the biggest expenses faced by working adults with young children, a dependent parent, or a child with a disability. However, there is a tax credit available to help working caregivers defray the costs of day care (referred to as “adult day care” in the case of the elderly).
To qualify for the tax credit, you must have a dependent who cannot be left alone and has lived with you for more than half of the year.
Qualifying dependents may be the following:
- A child under age 13 when the care is being provided.
- A spouse who is physically or mentally incapable of self-care.
- An individual who is physically or mentally incapable of self-care, is either your dependent or could have been your dependent except that his or her income is too high ($4,150 or more), or he or she files a joint return.
Even though you can no longer receive a deduction for claiming a parent (or child) as a dependent, you can still receive this tax credit if your parent (or other relative) qualifies as a dependent. However, this means you must provide more than half of their support for the calendar year. Support includes money spent to provide food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar types of necessities. Even if you do not pay more than half your parent’s total support for the year, you may still be able to claim your parent as a dependent. The conditions where that could apply are if you pay more than 10 percent of your parent’s support for the year, and, with others, collectively contribute to more than half of your parent’s support.
The total expenses you can use to calculate this credit is $3,000 for one child or dependent or up to $6,000 for two or more children or dependents. So if you spent $10,000 on care, you can only use $3,000 of it towards the credit. Once you know your work-related day care expenses, you need to multiply the expenses by a percentage of between 20 and 35 to calculate the credit, depending on your income (a chart providing the percentage rates is available via IRS Publication 503.)
For example, if you earn $15,000 or less and have the maximum $3,000 eligible for the credit, you multiply $3,000 by 35 percent to figure out your credit. If you earn $43,000 or more, you multiply $3,000 by 20 percent (a tax credit is directly subtracted from the tax you owe, in contrast to a tax deduction, which decreases your taxable income).
The care being provided can occur in or out of the home, as well as by an individual or by a licensed care center, but the care provider cannot be a spouse, dependent, or the child’s parent. The main purpose of the care must be the dependent’s well-being and protection, and expenses for care should not include amounts you pay for food, lodging, clothing, education, and entertainment.
To get the tax credit, you must report the name, address, and either the care provider’s Social Security number or employer identification number on your tax return. To find out if you are eligible to claim the credit, click here.
For more information about the credit from the IRS: