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Tax Credit Can Be Child’s Play

Are you sending your child or dependent to a daycare or summer camp? If so, you may be eligible for the Child and Dependent Care Credit, a tax credit designed to help parents and guardians offset the cost of child care and for dependents. The credit applies to expenses paid for the care of a qualifying individual so that the taxpayer (and spouse, if filing jointly) can work or look for work.

Some key points to consider:

  • A qualifying individual is a dependent child under 13 years old, a spouse or another dependent who is physically or mentally incapable of self-care.
  • A care provider is any person or organization that provides care for your child or dependent while you are working or looking for work.
  • There is no income limit for claiming the credit for 2023 or 2024.

Amount of Credit

For 2023, the maximum amount of expense that can be claimed is $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals. The amount of credit for child and dependent care expenses is based on a percentage depending on your adjusted gross income. The percentages range from 35% to 20%.

For taxpayers with adjusted gross income of $43,000 or greater, the percentage is 20%. Let’s say, for example, you and your spouse earned a combined $100,000 in 2024 and you have one child dependent who is under the age of 13. You paid $3,000 for your child to attend a summer camp while you and your spouse were working. The amount of credit you are entitled to would be 20% of the $3,000 (or $600). Similarly, if you had two children under the age of 13 and paid $3,000 for each of them to attend summer camp (for a total of $6,000), then your credit would be 20% of the $6,000 (or $1,200).

Dependent Care Benefits Withheld From Pay Through Your Employer

Having your employer withhold funds in a FSA provides pre-tax benefits but it does limit the amount of credit you can claim on your tax return. If you do not use all the benefits, you will have to pay income tax on the amount not used for child care. You can have up to $5,000 withheld per household. If you are in a higher tax bracket, this likely provides you with more tax savings than just claiming the credit on your tax return.

How to Claim the Tax Credit

To be able to claim the credit on your tax return, you will need the amount of care you paid for each child, as well as the name, address, and social security number or EIN of the care provider. If you have multiple providers, we will need a breakdown of the amount of expenses for each child (or dependent) for each provider. Typically, dependent care providers can give you with an invoice or statement that breaks out most if not all this information.

If you have any questions regarding the Child and Dependent Care Credit, such as which expenses may qualify for this credit, we encourage you to reach out to our office. One of our accounting professionals would gladly be able to assist you. As always, our goal is to make your life less taxing.