Working parents eligible for dependent care tax break A substantial credit � up to $2,100 � is available against the income tax liability of working parents who must pay dependent care expenses in order to be gainfully employed.
The credit can be claimed for costs incurred for the care of dependent children under 13 years of age, for older dependents who are mentally or physically incapacitated, of for a taxpayer's disabled spouse. In the case of divorced parents, only the parent having custody of a qualifying child for the longer period during the year can claim the credit.
The credit is based on eligible work-related expenses incurred primarily for well-being and protection of a qualifying person. Expenses may be for care outside the taxpayer's home or for in-home care. Expenses for in-home care may qualify even if housekeeping services are provided in addition to child and dependent care. Taxpayers who employ in in-home care provider or housekeeper may have certain employment tax requirements.
The amount of expenses that may be taken in to account for the credit cannot exceed $3,000 if there is one qualifying individual ($6,000 if there are two or more qualifying individuals) or the taxpayer's earned income (or the lesser of the taxpayer's or the spouse's earned income if married).
The amount of eligible expenses and the $3,000 and $6,000 amounts must be reduced by any employer-paid dependent care benefits that are not included in the taxpayer's income. The credit ranges from 20 to 35 percent of eligible expense, depending on the taxpayer's adjusted gross income.
Taxpayers claiming a child or dependent care credit must identify the care provider. Form 2441 and Schedule 2 (for those filing the short form) have space for the care provider's name, address, and identification number.
If a tax exempt organization, such as a church or charitable organization, provides the care, you need not include an identification number. You must provide, in every case, the care provider's name and address. The IRS may deny the credit to taxpayers not including this information on their returns.
The IRS developed Form W-10 for obtaining this information from the care provider. You will have met your responsibility after you have obtained the form, properly completed and signed, from your care provider. Obtain your completed Forms W-10 as soon as possible. That way you protect your eligibility for the dependent care credit even if the provider moves to another location.
For answers to your questions about the dependent care credits, or for copies of Form W-10, contact your local H&R Block office.