We all know child care can get expensive. However, it’s sometimes necessary. If you are working and need help with child care, you can reduce some of the impacts to your bottom line with the help of the child care tax credit.
Before you claim the child care tax credit, though, there are a few things you need to know:
1. Your Child Needs to be Qualifying
You can only claim this tax credit if your child “qualifies.” This means that you claim the child as a dependent and you have the appropriate Social Security number (or other identifying information). For the most part, a qualifying child must under the age of 13. If you have an older child, you can’t claim the child care tax credit.
2. The Facility Needs to Have a Tax Identification Number
Once you know your child qualifies, you need to make sure that your chosen facility has a tax identification number. You will need that number if you want to claim the credit. Ask your child care provider for the information so that you have it for your tax form. For parents who use day camp as a way to provide care for their children during the summer, it’s possible to claim part of the cost for a tax credit. Just make sure you have the right tax information.
3. The Child Care Needs to be for Work
You can only take advantage of the child care tax credit if your work is involved. You can only claim it if the reason your child is being watched is so that you can work. This means that, while day camp can qualify, sleep away camp does not. Also realize that if you have a stay-at-home partner who can take care of the children, you aren’t eligible for the tax credit. Basically, the credit is meant for those who need to pay for child care while they are at work.
4. You Can’t Claim with a 1040EZ
The proper form for claiming the child care tax credit is the 2441. It’s supposed to be filled out and turned in with your 1040. However, if you file a 1040EZ, you won’t be eligible for the tax credit. You can claim the credit with a 1040A or 1040NR, but not with an EZ version of your tax form. Make sure you understand what the forms entail before you attempt to claim your tax credit.
5. There is a Cap on the Amount You can Claim
Finally, there is a cap on the amount you can claim. One of the advantages of a tax credit is that it’s a dollar-for-dollar reduction of your tax liability. However, there is a cap on the amount you can claim for your child tax credit. You won’t be able to claim the full amount that you pay for child care services. Instead, there is a formula used based on your income. Once you reach a certain level of income, you are ineligible for your child care credit.
As with all things taxes, there might be other requirements and limitations. If you have questions about the child care tax credit, be sure to ask a knowledgeable tax professional.