Child Care Tax Credit 2010: Qualifications for Dependent Care Credit

Did you pay someone to watch your child, spouse or other dependent during the 2010 tax year? If you did, you may be eligible for the Child and Dependent Care Tax Credit. Paying for child care or dependent care is costly so this is definitely one credit you won’t want to miss. Of course, in order to claim the credit you must meet certain criteria. Here is a closer look at the tax credit and what it entails.

How Much Can You Claim?

While the cost of care can reach into the thousands and even tens of thousands of dollars each year, the Child and Dependent Care Tax Credit is capped at $3,000.00 for one qualifying child or dependent and $6,000 for 2 or more qualifying children or dependents. The amount you will be able to claim is 35% of the total amount paid in childcare or dependent care, up to the maximum amount of either $3,000.00 or $6,000.00. While these figures can be small compared to your total bill, they can still make a significant difference on your tax return.

Another important thing to make note of here is that if your employer reimbursed you for any daycare or dependent care expenses you must subtract out what they paid you before calculating the amount of your credit.

How to Qualify for the Credit

There are numerous qualification criteria that are all outlined by the IRS on their website. Here is a list of the qualifications:

Age Criteria: There are some basic qualifications that must be met in order to receive the credit. These include that the child or children you are claiming on your return must be under the age of 12. Additionally, you can claim older dependents including your spouse on your return as long as they have some type of physical or mental condition that prevents them from being left unattended.

Filing Criteria: In order to claim the credit your filing status must be one of the following:

• Married filing jointly
• Head of the household
• Single
• Qualifying widow or widower who has a dependent child.

Child/Dependent Care Rules: In order to be able to claim the credit you must have either been working, looking for work or in school while the care was being provided. Additionally, you or your spouse must be claiming on your return earned income either in the form of a salary, wages, tips, self employment earnings or employee compensation. If you were in school or are unable to care for yourself either physically or mentally then wages are not needed for the credit.

Child/Dependent Qualifications: In order for the child or dependent to qualify they must have lived with you for a minimum of 50% of the tax year. Exemptions for this qualification include the birth or death of claimed individual or a parent’s separation or divorce.

Who Can Care for Your Child or Dependent?

Only certain people can qualify to watch your child or dependent. Payment must be made to a caregiver and the caregiver cannot be your spouse or any other dependent. Additionally, the caregiver cannot be your child unless the child was over age 19 at the end of the tax year and is not a claimed dependent on your tax return. The caregiver you paid will need to be recorded on your return.

It is also important to point out that if you hired a caregiver who provided care for either a dependent or spouse in your home that you may have to claim yourself as a household employer. This means you would be responsible for withholding Medicare and Social Security from your caregivers pay. You would also need to pay unemployment tax.

If you paid for child or dependent care last year, you will want to find out whether or not you qualify for the tax credit. If you do qualify you will need to fill out and file IRS form 2441 with your tax return.