Basics of the Child and Dependent Care Tax Break

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To hold down a job, do you pay someone to care for a child under the age of 13, a disabled dependent of any age, or a disabled spouse? Those payments for child and dependent care expenses may entitle you to a partial tax credit.

Unlike a deduction, which reduces the income on which you figure your tax, a credit is a dollar-for-dollar subtraction from the tax that you would otherwise owe. Calculate the credit on Form 2441, Child and Dependent Care Expenses, which must accompany your return.

The credit ranges from 20 to 35 percent, depending on your adjusted gross income (AGI), of the first $3,000 spent for the care of one person and the first $6,000 for the care of two or more persons. The 20 percent credit applies when AGI exceeds $43,000.

Assuming you are liable for Social Security tax payments for housekeepers and babysitters, count those taxes as part of your expenses.

If you’re married, both you and your spouse must work at least part time, unless one of you is disabled or is a full-time student. You needn’t itemize for charitable donations and the like to qualify for the credit.

Your allowable outlays include the entire salary paid to a housekeeper, even though the helper’s duties don’t include acting as a baby sitter or companion for someone in your home. All you need to establish is that the helper’s services partially benefit the person for whom care is being provided – for instance, a fourth-grader who’s away at school and never physically present while the cleaning of his or her room takes place.

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About Julian Block

Julian Block

Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com

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