Tax season can be a time of excited expectations if you are getting a refund but a time of intense anxiety if owing the IRS. In recent years, several tax credits have been offered as a way to boost the economy and give the working man or woman some relief. One credit that can help families out considerably is the Child Care Tax Credit.
Significance
The Child Care Tax Credit is designed to reduce the amount of taxes a family with children must pay during the year. Families must meet certain qualifications to receive this credit, however. The amount of credit you get depends on your income for the reporting year and the amount of money you paid a caregiver to take care of your child or children. That amount will be compared to a chart showing a range of income plus household size. Your credit will be determined based on these statistics and automatically deducted from your owed taxes. However, according to the IRS, if you hire someone to come to your home to care for your child, you may have to file additional tax paperwork and take out Social Security taxes on the caregiver. It is not required of you to pay a professional nanny or day care, and the tax law allows for family members that are not a parent of the child to provide paid child care services.
Requirements
To qualify for Child Care Tax Credit, you must meet a few requirements. You must have one or more children under the age of 13 who require daily care. Further, you must be working for a taxable income or actively looking for work. If you are filing a joint return, your spouse must also be working or actively looking for work. You must file single, married filing joint, qualifying widow or widower with dependent children, or head of household to qualify. Amounts that can be claimed cannot exceed $3,000 per qualifying child, and the child must have lived in your household for at least six months out of the year.
Exceptions
There are exceptions to the Child Care Tax Credit that can further assist families who have children with disabilities that exceed the cutoff age of 13. If you have a child who cannot mentally or physically care for himself and is over the age of 13, also enrolled in and attending school, then you may claim that child. Examples of a qualifying disability are mental retardation, autism, conditions confining the child to a wheelchair and conditions that limit the child's movement.
Needed Information
To claim the Child Care Tax Credit, you must have certain information to give to the IRS, such as the name and address of the caregiver, plus any tax IDs and certification that the caregiver may hold. During tax season, most licensed day care facilities may give you a paper with all this information and the amount of child care expenses you paid for the year. Having this paper when filling out your tax forms can make the process simpler.
Alternative Households
In households where the parents are separated or divorced, the custodial parent is responsible for filing the Child Care Tax Credit and cannot allow the noncustodial parent to do so unless the child was in their home for six months out of the year. Only one parent can claim this credit, however. If both try to claim the child, the IRS will investigate for fraud and possibly perform an audit. Severe fines and penalties may apply should this be the case.
