Child Care Tax Credit
Do you qualify? If you paid someone outside your family to care for one or more of your children while you worked, or looked for work, you can reduce your income taxes by a portion of the amount you paid by claiming the child care tax credit. Before starting the calculation, though, be aware that you can only claim the credit if you have earned income–that is, income from work.
To calculate the child tax credit, you’ll need to know a few numbers. First is how much you spent on child care for the year. However, the IRS limits the claimable amount to $3,000 for one child and $6,000 for two or more. If you paid for care of two or more kids, the amount you spent does not have to be divided equally between them. So if you spent $3,500 on care for one child and $1,500 on care for another, you can still claim $5,000 worth of child care expenses.
Ask any new parent, and they will tell you that the costs associated with a new baby are many, everything from bottles to diapers to cribs, strollers, and high chairs, and all of this before the child even learns to walk and talk and beg you for a pair of $500 designer jeans. Parenting is one of the most rewarding, and important jobs that a person can have, in addition to being one of the most expensive. The good news is that there are two tax breaks offered by the federal government that the majority of parents can qualify for, which are the dependent exemption and the child tax credit.
The dependent exemption is a tax break that allows you to receive an additional tax deduction of as much as $3,000 each year until your child turns 19. This is addition to the standard tax exemption that the IRS allows per person to cover basic living expenses. Single people are allowed one exemption, while married couples have the option of taking two of these exemptions per year.
The amount that you will save with this exemption depends on your current tax bracket, and generally, the higher the tax bracket, the more money you will receive, unless your income is too high to claim an exemption, but again, most people will qualify. This dependent exemption is only phased out for married couples filing jointly with an adjusted gross income of more than $300,000. Limits for single parents exist as well, and it is important to research these limits, both for married and single parents, to be sure that your income does not exceed them. If you qualify for this exemption, you can simply fill out the required lines on your tax form, including an adoption taxpayer identification or social security number for each child.
The child tax credit is available for married couples filing jointly with a reported gross income of below $13,000, although again, it should be noted that income limits for both single and married parents are revised frequently. With this credit, it is possible to receive up to $1,000 per child.
Determining the amount of credit that an individual can claim requires the completion of the child tax credit worksheet, which can be downloaded from the IRS website. You will need to provide a social security or adoption taxpayer identification number for each child in order to qualify. As with all tax information you should always check with a professional because tax laws can change every year.
Next thing you need to know is your earned income for the year; if you’re married, you also need to know the separate amount of your spouse’s earned income. This is the amount you made in wages, salaries, tips or self-employment income. It does not include interest or other non-work income.