We understand that caring for your children is a particularly expensive endeavor and places a financial burden on all families, but especially on lower income families. Many working families are faced with the decision of whether it’s “worth it” to pay someone else to care for their child, or whether to just have one adult stay home with the kids.
If you’re contemplating this decision or if you’ve already made the decision to invest in professional childcare, we have good news! The Federal Government offers something called the Child and Dependent Care Tax Credit that may give back money you’ve spent paying others to care for your child (or even for elderly dependents as well). For many families, this credit can result in hundreds or even thousands of dollars that may be returned to you.
There are a few key points that many people are surprised to learn about this credit:
The credit is worth up to $6,000
The childcare tax credit can be worth up to $6,000 if you have multiple dependents, up to $3,000 for just one. Typically, the amount of the credit will be somewhere between 20% to 35% of allowable expenses.
No Income Limit
Often, tax credits and breaks are offered to families at or below a specific income level. That’s not the case with the Child Care Tax Credit. While lower income families are likely eligible for a higher credit, all families can benefit regardless of income level.
Credit, Not a Deduction
As the name implies, the Child Care Tax Credit is a credit as opposed to a deduction. Credits are typically more valuable, because they allow you to reduce the amount of tax you owe as opposed to just reducing the amount of income you pay taxes on.
Eligibility
Just because people at all incomes are eligible, does not mean everyone is eligible. For instance, in order to claim the credit married couples must file their taxes jointly, the parent (or parents) must be actively employed or seeking employment, and the parent (or parents) must have some type of income. Keep in mind, this is just an overview and there are other eligibility requirements we haven’t addressed here that you such discuss with a qualified advisor.
For more information on the Child Care Tax Credit visit the IRS Website and consult with a qualified advisor.
