Dependent Care Credit

The child and dependent care credit is available to working parents who have expenses for the care of their dependents. You must meet the following tests in order to claim the credit:

• The care must be for one or more qualifying persons.
• You (and your spouse, if married) must have earned income during the year. There is an exception for a student-spouse and a spouse not able to care for themselves.
• You must pay child and dependent care expenses so you and your spouse (if married) can work or look for work.
• You must make these payments to someone you cannot claim as a dependent.
• Your filing status cannot be married filing separately. However, there are exceptions.
• You must identify the care provider on your tax return.
• If you have dependent care benefits at your place of work, you cannot exclude or deduct more than $3,000 between the two ($6,000 for two or more qualifying dependents).

Qualifying Person Test A qualifying person is:
1. Your child who was under the age of 13 when the care was provided. The child must have lived with you for more than half the year.
2. Your spouse who was physically or mentally unable to care for themselves and lived with you for more than half the year.
3. A person who was physically or mentally unable to care for themselves and was your dependent or would have been your dependent: 1) if they had less than $3,300 in gross income, 2) filed a joint return, or 3) could have been claimed as a dependent on someone else's return.

In the event of divorced parents, the custodial parent may claim the credit if the non-custodial parent is entitled to take the dependency exemption.

Earned Income Test You and your spouse (if married) must have earned income in order to claim the credit. Earned income is defined as wages, salaries, tips, other taxable employee compensation, or earnings from self-employment. If one spouse is a student-spouse or unable to care for themselves, they are treated as having earned income for any month they are a full time student or unable to care for themselves.

Work-Related Expense Test The expenses incurred must be work-related. This means that the expenses allow you to work and are for a qualifying person's care. Expenses that allow you to work or to look for work are considered work-related. For purposes of this credit, volunteer work is not considered working.

Payments to Dependents or Relatives You cannot count payments made to someone you can claim as a dependent, to your child under the age of 19, your spouse, or the parent of your qualifying child.

Filing Status Generally, if you are married your filing status must be married filing joint. However, if you are legally separated or considered unmarried you may be eligible to take the credit. You are considered unmarried for this purpose if:

• You file a separate return
• Your home is the home of a qualifying person
• You pay more than half the cost of keeping up a home
• Your spouse does not live in your home for the last 6 months of the year.

Provider Identification You must identify all persons or organizations that provide care. You must give the provider's:

• Name,
• Address, and
• Taxpayer identification number (social security number or employer identification number).

If you cannot provide all the information requested, you must show that you made reasonable efforts to obtain the information. Otherwise, you cannot take the credit.

Deductible Expenses

You can only deduct expenses that were paid by December 31 of the year for which the return is being prepared. If expenses are reimbursed, you may not deduct those expenses.

The amount of deductible expenses cannot exceed:

• Your earned income or
• The smaller of your earned income or that of your spouse, if married.
• $3,000 for one qualifying person or $6,000 for more than one qualifying person.

The amount of the credit is a percentage of your eligible expenses. The percentage varies depending on your adjusted gross income. It starts at 35% and decreases to 20%. The credit is claimed by filing Form 2441 with your return.