For some families, elder care or child care expenses can come on quite suddenly and take more out of the family budget than the rent or mortgage payment. While everyone’s situation varies, the Child/Dependent tax credit offers some relief. It’s important to understand how this tax credit helps middle and low-income Americans afford to care for their loved ones while maintaining a source of income.
If you and your spouse must pay for child or elder care so you can work or look for work, you may be eligible to claim this valuable tax credit. If one spouse isn’t working but is a full-time student, you may also be eligible for the Child/Dependent tax credit.
Because these expenses can make up such a huge chunk of the family budget, it’s crucial to include them in the financial plan. Be sure to ask your employer about whether they offer a Dependent Care FSA (Flexible Spending Account) that takes a portion of your daycare expenses out of your paycheck pre-tax to put toward care costs.
If you have some idea of what your monthly costs for care are, be sure to budget those costs carefully. Put them as close to the top of your priority list as possible. Without dependable care, working can be impossible.
Depending on your gross income, you may receive a percentage of your allowable child care or elder care expenses, up to $3,000 per year per person with a limit of $6,000 for the care of two or more people.
This means that you could get a portion of your eligible child or elder care expenses back when you file your taxes.
As with all tax questions, it’s best to seek answers from the experts. If you aren’t sure whether you qualify for the Child/Dependent care tax credit, take a look at this list of IRS requirements:
- You must identify the person receiving care on your tax return.
- If you file a joint return with your spouse, you both must earn income from taxable employment or self-employment.
- You must identify the care provider(s) on your tax return, and they can’t be your spouse, parent of the qualifying person, your child who is under age 19, or anyone you claim as a dependent on your tax return.
- The person receiving care must be under the age of 13 or your spouse who is physically or mentally incapable of self-care. Certain other individuals may also qualify.
If you aren’t sure if you qualify, a tax professional can help you make a final determination about whether you should claim this tax credit.
Unexpected expenses can come up at any time, that’s why it’s important to build and maintain an emergency fund. While emergency funds aren’t designed to cover dependable care for an extended period of time, they can help initially or when unforeseen events come up.