If you incur expenses in caring for a child, your spouse or a disabled dependent, you may be eligible for federal tax credits. A tax credit is superior to a tax deduction because it is subtracted directly from the amount of tax you owe, instead of from your taxable income.
The Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit is designed to help reimburse you for expenses you incur paying someone to care for a qualifying person whom you ordinarily provide care to -- your child age 12 or younger, your spouse or another dependent physically or mentally incapable of self-care -- so that you can work or look for work. The qualifying person must have lived with you for more than half the tax year. The credit is worth up to $3,000 for one person and up to $6,000 for two or more people. It may be used to offset 35 percent of your expenses. You cannot claim this credit if you are married filing separately.
The Child Tax Credit
The Child Tax Credit partially offsets expenses you incur in caring for a child 16 or younger who lived with you for more than half the tax year. It is worth up to $1,000, depending on your income. The child doesn't have to be your son or daughter -- your stepchild, foster child, brother, sister, stepbrother, stepsister, grandchild or a descendant of any of these people also qualify. The credit is gradually phased out for taxpayers whose modified adjusted gross income exceeds a cutoff value that ranges from $55,000 to $110,000, depending on your filing status.
The Additional Child Tax Credit
If your total federal income tax burden is less than $1,000, you can't claim the full Child Tax Credit. The Additional Child Tax Credit, if you qualify for it, may allow you to claim the full $1,000 even if this means the IRS owes you a refund. Your earned income during the tax year must have exceeded $3,000 not including capital gains amounts such as stock market gains. You can claim up to 15 percent of your earned income above $3,000 until the total of your Child Tax Credit and Additional Tax Credit reaches $1,000. Special rules apply if you have at least three qualifying children but didn't make at least $3,000 in earned income.
Claiming the Credits
You must file Form 1040 to claim any of the foregoing credits, and you must claim your dependent as an exemption on your tax return. You don't need to file any additional forms to claim the Child Tax Credit. To claim the Child and Dependent Care Tax Credit, you must also file Form 2441. To claim the Additional Child Tax Credit, you must also file Form 8812.
- Internal Revenue Service: Ten Things to Know About the Child and Dependent Care Credit
- Paying for Senior Care: Federal Tax Credit for Elderly Dependent Care
- Internal Revenue Service: Ten Facts about the Child Tax Credit
- Internal Revenue Service: Topic 602 - Child and Dependent Care Credit
- Internal Revenue Service: Child Tax Credit
- Internal Revenue Service: Health Savings Accounts and Other Tax-Favored Health Plans
David Carnes has been a full-time writer since 1998 and has published two full-length novels. He spends much of his time in various Asian countries and is fluent in Mandarin Chinese. He earned a Juris Doctorate from the University of Kentucky College of Law.