If you paid someone to provide daycare or child care services for your dependent children, so that you or your spouse could work or look for work, then you may be entitled to claim the Child and Dependent Care Credit on your federal income tax. In fact, providing paid care or household services to any dependent under the age of 13, or a disabled dependent adult or spouse, can qualify you for this tax credit. The following restrictions apply to the Child and Dependent Care Credit:
- The care must have been provided to a qualified dependent.
- The care must have been provided so that you or your spouse could work, or look for work.
- Your filing status must be single, married filing jointly, head of household, or widow with dependent child.
- The qualifying dependent must have lived with you for more than half of the year.
- You and your spouse (if applicable) must have earned income from wages, salaries, tips or other compensation. If either you or your spouse go to school full-time, you are considered to have annual earned income of $3,000 for the purposes of this credit.
- You can’t pay your spouse, or someone you claim as a dependent, to be your care provider. Even if you have a child under the age of 19 who is not your dependent as your care provider. And yes, you must identify the care provider on your tax return.
Though rated on a sliding scale according to income, the Child and Dependent Care Credit can qualify you to save up to 35% of your qualifying expenses in tax liability. If your employer pays for any of these care expenses for you, the first $5,000 of this benefit may be excluded from your income. You must report any additional amount the employer pays you as income. If you do not, qualifying expenses will be reduced by the amount of any dependent care benefits that your employer provides.
If you employ someone to provide child care services in your home, you may be considered a household employer, and thus be required to withhold social security, medicare and unemployment tax. For more information, check with the IRS publications on Household Employment Taxes.