CARL WATTS & ASSOCIATES

March 14, 2016

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Child and Dependent
Care Credit
Any taxpayer with a family knows about this credit, but are you quite sure you know everything you should about who is entitled to the credit and under what circumstances? Our mission today is to bring you a little more light into what the child and dependent care credit is really about and who qualifies.


First of all, you may be able to claim the child and dependent care credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work.

You may not take this credit if your filing status is married filing separately.

The amount of the credit is a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income.

The total expenses that you may use to calculate the credit may not be more than $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals.

Expenses paid for the care of a qualifying individual are eligible expenses if the primary reason for paying the expense is to assure the individual's well-being and protection. If you received dependent care benefits that you exclude or deduct from your income, you must subtract the amount of those benefits from the dollar limit that applies to you.

To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. For instance, if your AGI is not over $15,000, the percentage is 35%; if your AGI is over $43,000, the percentage is 20%.


The care may be provided in the household or outside the household; however, do not include any amounts that are not primarily for the well-being of the individual.


You should divide the expenses between amounts that are primarily for the care of the individual and amounts that are not primarily for the care of the individual. You must reduce the expenses primarily for the care of the individual by the amount of any dependent care benefits provided by your employer that you exclude from gross income.

In general, you can exclude up to $5,000 for dependent care benefits received from your employer. Additionally, in general, the expenses claimed may not exceed the smaller of your earned income or your spouse’s earned income; however, a special rule applies if your spouse is a full-time student or incapable of self-care.

You must identify all persons or organizations that provide care for your child or dependent. You must report the name, address, and taxpayer identification number (either the social security number or the employer identification number) of the care provider on your return. If the care provider is a tax-exempt organization, you need only report the name and address of the organization on your return. You can use Form W-10, Dependent Care Provider's Identification and Certification, to request this information from the care provider. If you cannot provide information regarding the care provider, you may still be eligible for the credit if you can show that you exercised due diligence in attempting to provide the required information.

If you pay a provider to care for your dependent or spouse in your home, you may be a household employer. If you are a household employer, you may have to withhold and pay social security and Medicare taxes and pay federal unemployment tax.

The care provider cannot be your spouse, the parent of your qualifying individual, your child who is under the age of 19, or a dependent for whom you or your spouse may claim an exemption on your return.


A qualifying individual for the child and dependent care credit is:

  • Your dependent qualifying child who is under age 13 when the care is provided,
  • Your spouse who is physically or mentally incapable of self-care and lived with you for more than half of the year, or
  • An individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and is either your dependent, or could have been your dependent except that he or she has gross income that equals or exceeds the exemption amount, or files a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer’s return.

An individual is physically or mentally incapable of self-care if, as a result of a physical or mental defect, the individual is incapable of caring for his or her hygiene or nutritional needs, or requires the full-time attention of another person for the individual's own safety or the safety of others.

A noncustodial parent who is claiming a child as a dependent should know that a child may be treated as the qualifying individual of the custodial parent for the child and dependent care credit, even if the noncustodial parent is entitled to claim the dependency exemption for the child.

If an individual is a qualifying individual for only a part of the tax year, only those expenses paid for care of the individual during that part of the year are included in calculating the credit.

You must provide the taxpayer identification number (usually the social security number) of each qualifying individual.

If you qualify for the credit, you must complete Form 2441, Child and Dependent Care Expenses, and Form 1040 or Form 1040A, U.S. Individual Income Tax Return, or Form 1040NR, U.S. Nonresident Alien Income Tax Return. If you received dependent care benefits from your employer and an amount is shown on your Form W-2, you must complete Part III of Form 2441.

You cannot claim the child and dependent care credit if you use Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents.

What you can and should do is to entrust your tax professional to take care of all your dealings with the IRS and make sure you take advantage of all the credits and deductions you are entitled to.



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