Welcome to the Tax Blog

News, information, and opinions about:

  • Federal, State, and Virginia Beach Taxes
  • The Tax Preparation Business
  • Tax Planning

If you have a question or comment, please drop me a line. Paul @ PIM Tax.

16 August 2015

The Child and Dependent Care Credit (CDCC) provides a tax credit to taxpayers who purchase daycare for a young child or a family member/dependent with a disability. You can claim up to $3,000 of expenses for the daycare for one qualifying person who needs care, and up to $6,000 of the expenses if you are paying for the daycare of more than one qualifying person.  Unfortunately, the actual tax credit is not the same as the expenses you can claim. The credit is somewhere between 20% and 35% of your qualifying expenses, depending on your EARNED income.

There are quite a few rules and stipulations regarding the CDCC.

  • The person you are providing daycare for must be:
    • A Qualifying Child on your tax return under the age of 13. (You can still get the credit for the part of the year your child was under 13 if they turned 13 during the tax year.)
    • OR your disabled spouse
    • OR any disabled person you can claim as a dependent, EVEN IF they made over $4,000 or filed a joint tax return (You cannot normally claim someone who is not your child as a dependent if they earned more than the personal exemption amount ($4,000 in 2015). There is an exception to that rule for the purpose of claiming CDCC.)
  • The taxpayer must:
    • File single, jointly, head of household, or qualifying widower. If you are married filing separately you generally cannot take the credit unless you also meet the conditions of being considered unmarried.
    • AND work, look for work, or attend classes full time. If you file jointly, both spouses must meet this requirement. (You cannot take the CDCC to do volunteer work or to have a 'play day'. You must have a job or be a student.)
    • AND have earned income.
    • AND not claim the credit if the person paid to provide daycare was your spouse or dependent, or the parent of your child.
    • AND provide the required information about the daycare provider.
  • Qualifying Expenses are the lesser of:
    • Actual Expenses
    • $3,000 for one dependent, $6,000 for two or more
    • The amount of earned income of the tax payer (lowest paid spouse if filing jointly).
  • Fees for overnight camps, private schools, or tutoring programs are NOT qualified expenses.

Tax Tip: You can take up to the $6,000 in qualifying expenses for one child in daycare, as long as you have two (or more) qualifying dependents.

Example: Tina works and has two children ages 4 and 12. The 4-year-old goes to Sunshine Valley Daycare Center during the day while Tina works. The cost of Sunshine Valley Daycare Center is $9,000 per year. The 12-year-old goes to school during the day. After school the 12-year-old rides with a friend and the friend's mother to a scouts meeting, which is not a qualifying daycare provider. Tina picks the 12-year-old up from the scouts meeting on her way home from work. Although she is only paying daycare for one child, for the purposes of the CDCC Tina has two qualifying children. Therefore she can use the $6,000 limit on qualifying expenses when she figures her CDCC.

Most people with child or dependent care expenses roll their eyes when they find out the qualifying expenses are limited to $3,000 for a single child. The actual expenses for most daycare are considerably higher. I'd like to see the limit on allowable expenses raised, but that will take an act of Congress. Until we get one we will take what we can get and work to get the largest child and dependent care credit  the law allows.

Disclaimer

Information in the Tax Blog is current as of the day it was posted. Tax laws change frequently, and it is likely that as time passes acts of Government will make some of the older blog content out of date.

The information provided is for education purposes only. It is general in nature and may not pertain to the Reader's situation. Every taxpayer's circumstances are unique. Reader's are urged to do some research or talk to a tax professional before acting on any of the information posted in this blog.

Paul D. Allen is a proud member of the National Association of Enrolled Agents, the National Association of Tax Professionals the Financial Planning Association of Hampton Roads, the National Association of Personal Financial Advisors (NAPFA), and The Tidewater Real Estate Investors Group. You can read more about Paul's background here.

NAEA proud member

Member Logo Color Small

FPAHR

 

 

Virginia Beach Tax Preparation Real Estate Discount2

Common Acronyms

ACTC - Additional Child Tax Credit

AGI - Adjusted Gross Income

AMT - Alternative Minimum Tax

APTC - Advanced Premium Tax Credit

AOC - American Opportunity Credit

CTC- Child Tax Credit

EIC - Earned Income Credit

HoH - Head of Household

LLC - Lifetime Learning Credit

MFJ - Married Filing Jointly

MFS - Married Filing Separately

MAGI - Modified Adjusted Gross Income

PIM - Plan of Intended Movement

PTC - Premium Tax Credit

QC - Qualifying Child

QHEE - Qualifying Higher Education Expenses

QR - Qualifying Relative

QW - Qualifying Widow(er)

 

Go to top