Child care expenses can put a strain on your household budget. When you want to recoup some of what you have paid toward daycare or child care expenses during the year, you could claim them on your tax return.
The IRS created the child and dependent care tax credit for working parents who pay for qualified daycare, babysitting, and other care expenses throughout the year. Receiving this tax credit is not as simple as adding them up and then claiming them on your tax return, however. You must meet stringent and specific criteria in order to deduct child and dependent care costs from your yearly taxes.
What is the Child and Dependent Care Tax Credit?
The child and dependent care tax credit was designed by the IRS for parents who work and must pay for child or dependent care like a babysitter or daycare. This tax credit pertains specifically to young children or disabled dependents. In order to claim it on your tax return, you must ensure that your children or disabled dependents meet the specific age requirements outlined by the IRS.
The IRS allows taxpayers to claim the credit for up to two children. You could get a tax credit of up to $3000 for one child and up to $6000 for two children. The credit will then be applied to any tax debt you owe to the IRS. If there is money left over after it is applied to your outstanding balance, it will be refunded to you.
Because of the amount of money you could potentially receive from this credit, the IRS requires taxpayers to fulfill the criteria in order to claim it legally on their taxes. Your tax return will be reviewed thoroughly to ensure you are using the tax credit as it is intended.
Requirements to Claim the Credit
The IRS has implemented several stringent requirements in order for taxpayers to be able to claim the child and dependent care tax credit. First, you can only claim child care expenses that you are paying while you are at work.
You cannot deduct those that you pay for a night out on the town, for example. You can also cannot deduct costs associated with hiring a personal assistant or a nanny. The expenses have to be paid directly because of you are working and unable to care for your children yourself during that time.
You can claim the child care tax credit if you hire a family member to take care of your children or dependents. The family member must:
- At least 19 years old
- Not be your legal dependent
- Not be your spouse
- Not be the children's parent
Further, the child care credit can only be used if you are paying child care expenses for children under the age of 13. You can claim the credit until your child's 13th birthday.
Qualifications to Claim Child Care Expenses
Before you claim the child care tax credit on your tax return, it is critical that you understand its purpose and the requirements for legally deducting it from your taxes. If you abuse the tax credit, you could have to repay the money to the IRS. You also could be charged with fraud and face paying expensive penalties.
To avoid abusing the child care tax credit, you should understand that it applies to only those expenses that you pay for daycare or babysitting while you are at work. You cannot deduct expenses that you paid to a part-time babysitter to watch your children while you go out at night. Those expenses are considered to be for personal use and not eligible for the child care tax credit.
Further, the tax filing status that you use when filing your taxes also affects whether or not you can claim the child care tax credit. If you file separately from your spouse, for example, you are not eligible for this credit. You must file either married filing jointly or as a single taxpayer in order to use the child care tax credit on your return.
Likewise, the expenses you pay for child care must go to a qualified child care provider as well as a legal U.S. citizen. You will be expected to prove both on your tax return. To do so, you are required to include the child or daycare provider's Social Security number or Employment Identification Number or EIN on your return.
Last, you are only allowed to claim child care expenses for your children who are under the age of 13. You cannot use the credit for children 13 and older unless they are physically disabled and unable to care for themselves while you are at work.
Child Care Expense Deduction Limits
While this tax credit is designed to help you recoup some of what you have paid in toward daycare or babysitting services throughout the year, there is a limit to how much you can claim on your tax return. In fact, it is easy to assume that you can write off your child care deductions for the entire year. However, that is not the case, and the IRS has set limits to how much you can actually claim for the child care tax credit.
If your income at least $15,000 for the year, you can deduct 35 percent of your child care or babysitting expenses from your taxes. However, if your income is $43,000 or above for the year, you can only deduct 20 percent of your child care costs when you file your income tax return.
The IRS also limits the number of children for which you can claim child care expenses. You are entitled to use the tax credit for no more than two of your children. Even if you have more than two children in daycare or at a babysitter's while you work, you can only use the expenses that you pay for two when using this particular tax credit.
When child care expenses have taken a toll on your family's budget, you might want to get some of that money back whenever possible. The IRS allows you to recoup some of what you paid for child care and babysitting services on your tax return. You can claim the child and dependent care tax credit for up to two of your children for whom you pay child care costs throughout the year. 
