The childcare credit is a tax credit for parents who have qualifying child or dependent care expenses related to taking care of their children or other dependents, while they work. This not only includes children, but also anyone you claim as a dependent on your tax return; anyone who lives in your home for at least half of the year and who cannot take care of themselves, such as an elderly parent or handicapped individual.
For tax year 2022, the childcare credit for dependents will be limited to a maximum of a 35% credit on up to $3,000 of childcare expenses for a child under the age of 13, or $6,000 for two or more dependents. The percentage you can claim in 2022 ranges from 20% to 35% of qualifying child or dependent care expenses, depending on your income level. Both you and your spouse must have earned income, although there are exceptions if one of you is a full-time student or unemployed and looking for a job. You do, however, need to find a job to claim the credit. Short periods of unemployment are allowed, so please check with your tax provider if needed. If you receive dependent care benefits from your employer, you must reduce your expenses by that amount. The expenses that exceed your dependent care benefits are available for the credit, but if all the dependent care benefit was not spent then it may be taxable to you.
A dependent care provider can be an individual or an organization. This means individuals who run a day care in their home qualify, as do individuals who come to your home. It also includes daycare centers that comply with all state and local regulations and expenses for a nursery school, pre-school, or a pre-kindergarten program. The credit does not, however, include expenses for kindergarten or higher grades if you choose to put your dependents in a private school. Fees, deposits, and application fees do count as expenses. A forfeited deposit will not count if you do not use that provider. Overnight camps do not count as a qualified expense, but a day camp you send your child to so you can work does qualify. This also does not include paying your spouse or ex-spouse, another dependent you claim on your tax return, or one of your other children under the age of 18, even if you no longer claim them as a dependent. . As an example, paying your 18-year-old child to watch your younger child while you work would not be allowed. But paying your mother-in-law to take care of your child would qualify, as long as she is not your dependent (even if she lives in your home).
In order to claim the credit, you must fill out Form 2441 and identify the care provider and include it with your filed tax return. You will need their complete name, address, and their taxpayer identification number. For an individual provider, this would be their Social Security Number or individual taxpayer identification number. If your provider is an organization, then you will need the employer identification number. For tax-exempt providers such as a school or church, then you can write “Tax-Exempt” in the space for the taxpayer identification number on Form 2441. Most providers will give you an annual statement with all the necessary information. If your provider is an individual, then you can use Form W-10 to request the necessary information. . A copy of their social security card will be sufficient. Please keep these papers with your other tax documents.