Child & Dependent Tax Credit Simplified !

dependent tax creditChild and Dependent Care Credit are part of tax credits which you can utilize to reduce the tax payable for a tax year. As you must be aware that while tax deductions and tax exemptions reduces your taxable income , the tax credit directly reduces the tax payable . So , it is quite advantageous to get tax credits. There are many types of tax credits available , but this post is devoted to tax credit you can enjoy for certain types of expense on child and dependents’ care. 

Care Expense on Child or Dependent

You are able to claim child and dependent tax credit , if following conditions are satisfied :

  1. You have hired someone and paid him/her for looking after your Qualifying Child or Qualifying Dependent.
  2. Your filing status is NOT married filing separately
  3. You must provide the taxpayer identification number (usually the social security number) of each qualifying individual.

Who is a Qualifying Child or Dependent ?

A qualifying individual for the child and dependent care credit is:

  • Your child  is under age 13 when the care is provided,
  • Your spouse is qualifying dependent if he/she  is physically or mentally incapable of self-care and lived with you for more than six months in tax year, or
  • An individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and either:
    • (i) is your dependent; or
    • (ii) could have been your dependent

But , you can not claim someone dependent  if

his/her gross income equals or exceeds the exemption amount, or

he/she files a joint return, or

you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer’s return.

You can also claim tax credit for a dependent individual :

  • Who has physical or metal defect to the extent that he/she can not take care of his or her hygiene and require full time care
  • If an individual is a qualifying individual for only a part of the tax year, only those expenses paid for care of the individual during that part of the year are included in calculating the credit.


Limit on Child & Dependent Credit Claim Amounts

Under the Child and Dependent Tax Credit provision, there are certain limitation as far as quantum of credit that can be claimed. The total expenses for claiming tax credit can not exceed  $3,000 for one qualifying individual or $6,000 for two or more qualifying child or individuals.

Further , in case one receives dependent care benefits that you exclude  from your income, then you must also deduct the amount of those benefits from the child credit limit ( $ 3000 or $ 6000 as the case maybe)  that applies to you.

If any dependent care benefits are provided by the  employer , that should be deducted from the total expense incurred on the care of qualifying individual for the purpose of  computing the claimable tax credit. In general, you can exclude up to $5,000 for dependent care benefits received from your employer. Additionally, in general, the expenses claimed may not exceed the smaller of your earned income or your spouse’s earned income; however, a special rule applies if your spouse is a full-time student or incapable of self-care.

Some Special Points Related to Care Provider Service

Three important points are

  • The claim of the child and dependent tax credit is with the duty  to identify all persons or organization that provided the service. Form W-10 (PDF), Dependent Care Provider’s Identification and Certification, should be used to collect the  information from the care provider.If the care provider is a tax-exempt organization, you need only report the name and address of the organization on your return.
  • The spouse, the parent of your qualifying individual, your child who is under the age of 19, or a dependent for whom you or your spouse may claim an exemption on your return can not be care provider for the purpose of claim of tax credit.
  • If the care is given in the house, you have additional responsibility in form of house holder employer for  social security and medicare deposit related to the care provider employees.

How to Claim Child & Dependent Tax Credit ?

Tax credit can be claimed by filling tax credit on relevant lines only following forms (any one as it suits )

  • Form 1040, line 49;
  • Form 1040A, line 31; or
  • Form 1040NR, line 47.

Further,you must complete Form 2441 and attach it aforesaid tax return form.

The amount of credit you can claim is limited to your tax and not refundable if more than tax payable.

You can use web app for quick test for claim of child and dependent credit 

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