Paying for someone else to watch your kids while you are at work is costly. Working parents are granted relief from the IRS with a tax credit which will offset the cost of child care. This credit is non-refundable, and cannot be carried forward to another year.
On April 15th, taxpayers may file form 2441, Child and Dependent Care Expenses if certain conditions apply.
– Tuition in a nursery school, or preschool program is allowed for the credit. However, private kindergarten, summer school, or tutoring costs are not.
– The cost of day camp is allowed, while the cost of sending your child to sleep away camp is not.
– If the taxpayer is married, he or she is required to file a joint return. Married filing separately as a filing status does not qualify for the credit.
– A qualifying child is one under the age of 13 when care is provided.
The credit is calculated as a percentage of qualifying expenses up to $3,000 for one child and $6,000 for two or more qualifying children. As a taxpayer’s adjusted gross income increases the percentage of the credit decreases with a range of 35% down to 20%. Most taxpayers fall into the 20% category.
For the tax credit purposes, a caregiver must be an individual not directly related to the child. To claim the expense the caregiver must provide a tax id (Social Security number) and include the wages as income. If the location of the care is provided in the taxpayers home, the taxpayer may be subject to employment taxes on the employee.
Sadly, many taxpayers, including small business owners, choose not to claim the credit because it would make the caregiver responsible for including the wages as income. The IRS is cracking down on daycare fraud where income is not being reported by those who provide care to children.
John Schetelich A graduate of Seton Hall University with a degree in accounting, John Schetelich has been preparing income tax returns for small business owners for over 20 years.