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The nanny tax diaries: Claiming child care expenses on your taxes

Kelly Phillips Erb is a tax attorney in the greater Philadelphia, PA area, where she focuses on tax law for businesses and families. She is also a freelance author and writer.

Kelly has published Ask the TaxGirl: Everything Parents Sh...

How to file for your child care provider

No matter where you live, good child care doesn’t come cheap. However by claiming the Child and Dependent Care Credit on your federal income tax return, the costs can become a little easier to swallow.
Tax tips for families
Nanny with the kids

Child care is expensive. According to Parents and the High Cost of Child Care: 2012 Report, released by Child Care Aware of America, in 2011, the average annual cost of full-time child care for an infant in a center ranged from about $4,600 in Mississippi to nearly $15,000 in Massachusetts.

Those kinds of dollars seriously chip away at your take home pay as an employee. Fortunately, there is a bit of a break on your federal income tax return that can make it a little less painful. Here’s what you need to know:


Your filing status must be single, married filing jointly, head of household or qualifying widow(er) with a dependent child. In other words, you may not file as married filing separately.


To claim the credit, child care must have been provided for one or more qualifying persons. A qualifying person is generally your dependent child under age 13 as well as your spouse and certain others (such as an aging parent) who are physically or mentally incapable of taking care of themselves. You must provide the name and tax ID number of each qualifying person on your tax return.


The qualifying person must have lived with you for more than half of the year. Exceptions for qualifying persons who were born or died during the year, as well as children of divorced parents.


You do not have to itemize to take advantage of the tax break for child care. The Child and Dependent Care Credit is not a deduction; it’s a credit. Credits are generally more desirable than deductions since they reduce your actual tax obligation on a dollar for dollar basis.


To qualify for the credit, you must have paid for child care so that you could work or look for work. If you are married, your spouse must also be working or looking for work.


Not only must you be working or looking for work, you must have earned income from wages, salaries, tips or other compensation (some restrictions apply). If you own your own business, you must show a profit in order to claim the credit.


You must provide the name and tax ID number of the child care provider on your tax return. If your child care provider doesn’t want you to include this information, you can’t claim the credit.


If you pay someone to come to your home to provide child care, you may also be responsible for paying employment taxes.


You cannot claim the credit for payments made to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent on your return, or to your child who will not be age 19 or older by the end of the year even if he or she is not your dependent.


For purposes of the credit, you can claim up to 35 percent of your qualifying expenses, depending upon your adjusted gross income (AGI, found on line 37 on your form 1040). The credit decreases as adjusted gross income increases.


For 2012, you may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying persons to figure the credit. The expenses must have been paid during the calendar year; prepaid expenses or expenses for services rendered but not yet paid don’t count.


If you receive any dependent care benefits from your employer that are deducted or excluded from your income, you have to deduct that amount from your qualifying expenses.

If you have or if situation is particularly complicated, be sure to ask your tax professional for more information. Don’t leave money on the table... you’ll need it for the college fund!

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