The Child and Dependent Care Credit became permanent starting with the 2012 tax year – giving working individuals with kids and other dependents a major way to offset their childcare and dependent care expenses.
The Dependent Care Credit allows you to deduct up to 35% of your childcare bills, up to a maximum of $6,000.
This credit also lets you deduct up to 35% of the expenses you paid for the care of another “qualifying” person – such as an ailing parent or a disabled spouse that cannot take care of himself or herself. (See more on the definition of a “qualifying” person below).
Qualifications for the Dependent Care Credit
You can qualify for the Dependent Care Credit provided you have earned income, and you paid someone to care for your dependent, or your child or children under age 13 so that you could go to work, or even just look for work.
In 2012, the maximum Dependent Care Credit you can get for one qualifying person is $3,000. For two or more qualifying people, the maximum allowable credit is $6,000.
To claim this credit, you must submit Form 2441, Child and Dependent Care Expenses, along with your 1040 to the IRS.
You should also fill out Form W-10, Dependent Care Provider’s Identification and Certification. But you don’t need to send in the W-10 with your tax return; instead just keep it for your records.
The IRS Definition of a “Qualifying” Person
According to the IRS, a qualifying person is:
1. Your qualifying child who is your dependent and who was under age 13 when the care was provided
2. Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the year, or
3. A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year, and either:
a. Was your dependent, or
b. Would have been your dependent except that:
He or she received gross income of $3,800; or
He or she filed a joint return; or
You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2012 tax return.
A dependent is a person, excluding you or your spouse, for whom you claim an exemption. To be your dependent, a person must be your qualifying child, or a qualifying relative.
For more information on the Dependent Care Credit, see IRS Publication 503, Child and Dependent Care Expenses.