Because of the rising cost of living, the grand majority of modern families have two working parents who earn two separate incomes. Due to this situation, children are often taken care of during the day by someone other than their parents. When parents have to pay their taxes, the government is wiling to reward parents who have pay for someone else to care for their kids.
Regardless of whether it is by means of a day care center, a family member, a close friend, or a hired nanny, the price of child care is anything but cheap. The child and dependent care credit, however, allows parents and guardians of children to receive money back from the government based on the money they have spent on child care throughout the year.
The child care credit can be claimed by qualified parents or guardians that have paid for the care of a dependent child. The dependent child must be under the age of thirteen to be considered for the credit. As a qualified dependent, the child has to have lived with you in the residence for at least half the year.
Only children who are claimed as dependents and tax exemptions on your federal tax returns can be used to apply for the child care credit. In the case of couples with children who are now divorced or no longer living in the same home, only the parent who lives in the child’s primary resident is permitted to claim the tax credit.
The price of private school tuition is not applicable under the child care credit, but instead can be counted as part of the educational concerns category where it does indeed count towards a deduction. After school day care programs that are charged a price apart from regular tuition is applicable.
There is often confusion regarding just how dependent care spending accounts are reported on tax forms. It is important to understand that these spending accounts cannot be used to obtain the child care credit because, even though it is used to pay for the cost of child care, it is tax-free.
Parents who are in this situation can still claim the child tax credit, but not a dependent care credit. Any expenses over and above the amount that was set aside in the dependent care plan are eligible for the child care credit. The credit received can be anywhere from twenty to thirty-five percent of the total amount of money spent on child care.
For parents who have worked hard to pay for their children’s child care, the child care credit is quite beneficial. The money they spend earns them both the child care credit and a child tax credit.
Tags: child care, child care benefits, child care credit, income tax, personal finance, tax credits, tax filing, tax return, Taxes