Child and Dependent Care Expenses Credit for Working Parents
Working parents can get a credit for Child and Dependent Care Expenses “CDCEC”. This credit includes summer camp, babysitters, paid daycare or other “child care” services. This credit only applies to children under the age of 13 and/or children with a disability. This credit allows you to deduct 35% of these expenses with a cap of $3,000 for one child and $6,000 for multiple children.
According to the American Camp Association, day camps cost an average of $314 per week! Specialty camps cost even more at $750 per week. At these rates, the cost of summer camp can add up quickly.
Work-related: To qualify for the credit both parents must be working or looking for work, and neither can be fully unemployed or a “stay-at-home” parent. This is a tax break meant to compensate for the fact that in order to be able to work, you need to find someone to care for your kids. Also, if your spouse is in school full-time, you can still take the deduction, despite the fact both of you are not gainfully employed.
How much: You can claim the costs of the camp itself, but not the gear and garb your child needs for camp. You can deduct medical-related expenses (i.e., a physical) on your Schedule A, itemized deduction schedule as well.
Form 2441: To claim a credit for child care expenses, you’ll need to attach a federal Form 2441 to a full federal form 1040. You cannot file the simplified federal forms and claim the credit.
Limitations: There are a few limits. The following don’t qualify: overnight camps, summer school tutoring, spousal care, or leaving the kids with granny.
Claiming the credit: You need to claim your provider and keep receipts.
The Tax Cuts and Jobs Act “TCJA” increases the Child Tax Credit “CTC”
The TCJA provides an expanded Child Tax Credit “CTC” and increased the incomes it applies to before the phase-out begins. The CTC still applies to dependent children as defined under IRC § 152. Under 26 U.S. Code §152(d)(1)(B), a qualifying relative includes an individual “whose gross income for the calendar year in which such taxable year begins is less than the exemption amount.” The TCJA also adds a $500 nonrefundable tax credit styled as a “Credit for Other Dependents” to give small break for dependents who are not “qualifying children.”
The CTC is $2,000 per qualifying child, which is double what was available under the old law, but it is limited to children under the age of 17. Another change is that $1,400 of this amount is potentially refundable for poorer taxpayers who already have a refund before claiming the CTC. The CTC appears on Lines 52 and 67 of the Form 1040. As for the phase-out increases, for married taxpayers filing a joint return, the phase-out now begins at $400,000 and is $200,000 for all other taxpayers.
For further details on this visit:
For CDCEC: https://www.irs.gov/pub/irs-pdf/p503.pdf
For CTC: https://www.law.cornell.edu/uscode/text/26/24
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