If you pay someone to take care of your child while you work, you know how the cost of childcare can take a big chunk out of your take-home pay. One tax break that may help offset this cost is a credit of up to 35% of the amount you pay for childcare on your tax return.
It's well worth tracking the amount you pay for the care of your child under age 13. If you qualify for the maximum 35% credit, and you pay $4,000 per year in childcare, for example, you may receive up to a $1,400 credit.
The credit is reduced as your income rises.
If your adjusted gross income is over $43,000, you may receive a child and dependent care credit equal to 20% of your expenses.
You, and your spouse if you are married, generally must both work or be looking for work to take this credit. You cannot take the credit or exclusion if you have no earned income for the year, unless you or your spouse is a full-time student or are disabled.
You may qualify for a child and dependent care credit for someone other than your child.
If your spouse or another person lived with you for more than half the year and was unable to care for himself or herself, you may be entitled to the credit. A person other than your spouse must be someone who is your dependent, or who would be your dependent except that they have gross income greater than $3,900 or they file a joint return, or you or your spouse can be claimed as a dependent on someone else's return.
A person is unable to care for himself or herself if physical or mental problems prevent the person from dressing, cleaning, or feeding themselves, or if they need constant attention to prevent injury to themselves or others.
If you have children under age 17 at the end of the tax year, you may qualify for a flat $1,000 per child tax credit.
The child must be your son, daughter, stepchild, foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of any of them, such as your grandchild, niece, or nephew. He or she must have lived with you for more than half of the year, not provided more than half of his or her own support, and be your dependent, among other requirements. A child is considered to have lived with you for the year if the child was born or died during the year and the child lived with you the entire time he or she was alive.
The child tax credit is in addition to any child and dependent care credit and dependency exemptions for which you qualify.
The credit begins to be reduced when your modified adjusted gross income reaches $75,000 ($110,000 if filing jointly, or $55,000 if married filing separately).
The child tax credit is generally limited to the amount of income tax you owe.
However, if your child tax credit is greater than your income tax liability, you may qualify for the additional child tax credit. The additional child tax credit is the amount of child tax credit remaining after you apply the credit to your income tax liability or 15% of your earned income over $3,000 for the year, whichever is less. If you have three or more qualifying children, different limits apply to you.
TaxACT calculates the child tax credit on Form 8812, and the additional child tax credit if it applies to you.