Tips on the Dependent Care Tax Credit


by Cindy Toran, Tax Manager

As any parent knows well, expenses for dependent care, such as child care or adult care, can be significant. The IRS provides a subsidy for working people who pay for dependent care while they work, look for work, or attend school full-time.

To Qualify for Dependent Care:

  1. 2014_12_08 Dependent Care owned by AVSofficeBoth parents must have earned income or be a full-time student. Both parents must have earned income or one may be a full-time student.
  2. Children must be age 12 or younger or unable to care for themselves.
  3. Expenses must be directly connected to allowing the parent(s) to work (i.e., not off-hours babysitting for personal reasons and no overnight camps) or to attend school.
  4. Expenses cannot be paid to a spouse or parent of the child or other person who is a dependent of the taxpayer.
  5. Generally taxpayers must file jointly or as head of household.
  6. Parents must be able to provide the name, address and tax identification number of the care provider on your tax return.

How much is the Dependent Care credit?

The amount depends on the number of children and ranges from 35% to 20% of work-related dependent care costs depending on your adjusted gross income (AGI). As the AGI increases, the percentage decreases.

  1. The amount of expense is limited to $3,000 for one child and $6000 for 2 or more children.
  2. Your tax bill must exceed the allowable credit (i.e., any credit in excess of the tax is not usable).
  3. Eligible daycare expenses must be reduced by any dependent care benefits provided through an employer, such as a Flexible Spending Account.

The IRS subsidy will certainly not cover the total cost of child care but every little bit helps the family budget, and the dependent care tax credit should not be overlooked. If you have a question regarding any type of dependent care, feel free to leave it below or post to our Facebook or Google+ page.

For more information, call Alex Franch at 781.789.7200. WorthTax has locations in Norwell, Dedham, and Weymouth, Massachussetts.
Alex Franch

Mr. Franch is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Mr. Franch is an Enrolled Agent and has eight years of tax preparation experience. He has been serving individuals, families, and businesses for several years with tax and financial planning strategies and is a junior partner with the firm. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA) with a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance.