Editor’s Note: This blog has been updated as of June 2022 for accuracy and comprehensiveness.

School is out for most young children, and if you are like many parents who have to pay for childcare or day camps, you are likely overwhelmed by the high costs. The hefty cost of childcare often makes parents hesitate before returning to work. Keep in mind that your situation could make you eligible for a federal tax credit that can lower your taxes. The Child and Dependent Care Credit allows you to work or look for work comfortably knowing your children/dependents are in good hands, while not overextending your budget.

Facts about the Child and Dependent Care Credit

To qualify for the credit, you need to meet some conditions:

• Your expenses must be directed to the care of one or more qualifying dependents which are:
  • A child under age 13
  • Physically or mentally disabled spouse unable to care for him/herself
  • Someone who has lived with you for more than half the year who is physically or mentally incapable of self-care and is either: (a) your dependent; or (b) could have been your dependent but he/she is over the gross income limit or files a joint return
• The care must be held at home, at a camp, or daycare facility.
• Your childcare/camp costs must be work related, meaning that you are forced to pay for the care in order to work.
• You need to have proof of earned income (wages, tips, salaries).
• When you claim the credit on your tax return, you need to document the name, address, and Social Security number/employee identification number of the care provider and receipts.
• You must complete IRS Form 2441, Child and Dependent Care Expenses as well as Form 1040.

Be aware that…

• For 2022, the credit has reverted back to $2,000 per child with no monthly payments.
• If you are married, you generally must file a joint return to take advantage of the credit. If your filing status is married filing separately you can claim the credit only if:
  • You lived apart from your spouse for the last six months of the year
  • Your home was the qualifying person’s main home for more than half the year and you paid more than half the cost of keeping up the home
• The credit can be as much as 35% of the qualified expenses that you pay, depending on your income.
• Summer school tutoring costs as well as overnight camp expenses do not qualify for the credit.
• The care provider cannot be your spouse, parent of qualifying individual, your child who is under 19 or a dependent of yours.

Though this credit is used extensively in the summer when it is needed by most parents and guardians, it is not solely a summer tax benefit. You can claim the credit for care during the school year as long as you qualify.

Questions? Contact us.