Chapter 33
Child and dependent care credit
Reminders
Taxpayer identification number needed for each qualifying person. You must include on line 2 of Form 2441 the name and taxpayer identification number (generally the social security number) of each qualifying person. See Taxpayer identification number under Who Is a Qualifying Person?, later.
You may have to pay employment taxes. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes. Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. See Do You Have Household Employees?, later.
This chapter discusses the credit for child and dependent care expenses and covers the following topics.
- Tests you must meet to claim the credit.
- How to figure the credit.
- How to claim the credit.
- Employment taxes you may have to pay as a household employer.
You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. The credit can be up to 35% of your expenses. To qualify, you must pay these expenses so you can work or look for work.
Dependent care benefits. If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them. You must complete Form 2441, Part III, before you can figure the amount of your credit. See Dependent Care Benefits under How To Figure the Credit, later.
Useful Items
You may want to see:
Publication
501 Exemptions, Standard Deduction, and Filing Information- 503 Child and Dependent Care Expenses
- 926 Household Employer’s Tax Guide
Form (and Instructions)
- 2441 Child and Dependent Care Expenses
- Schedule H (Form 1040) Household Employment Taxes
- W-7 Application for IRS Individual Taxpayer Identification Number
- W-10Dependent Care Provider’s Identification and Certification
Can You Claim the Credit?
To be able to claim the credit for child and dependent care expenses, you must file Form 1040 or Form 1040A, not Form 1040EZ, and meet all the tests, next, in Tests you must meet to claim a credit for child and dependent care expenses.
Tests You Must Meet to Claim a Credit for Child and Dependent Care Expenses
- Qualifying Person Test. The care must be for one or more qualifying persons who are identified on Form 2441. (See Who Is a Qualifying Person?)
- Earned Income Test. You (and your spouse if filing jointly) must have earned income during the year. (However, see Rule for student-spouse or spouse not able to care for self under You Must Have Earned Income, later.)
- Work-Related Expense Test. You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. (See Are These Work-Related Expenses?, later.)
- You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. If you make payments to your child, he or she cannot be your dependent and must be age 19 or older by the end of the year. You cannot make payments to:
- Your spouse, or
- The parent of your qualifying person if your qualifying person is your child and under age 13.
(See Payments to Relatives or Dependents under Are These Work-Related Expenses?, later.)
- Joint Return Test. Your filing status may be single, head of household, or qualifying widow(er) with dependent child. If you are married, you must file a joint return, unless an exception applies to you. (See What’s Your Filing Status?, later.)
- Provider Identification Test. You must identify the care provider on your tax return. (See Care Provider Identification Test, later.)
- If you exclude or deduct dependent care benefits provided by a dependent care benefits plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for). (If two or more qualifying persons were cared for, the amount you exclude or deduct will always be less than the dollar limit, since the total amount you can exclude or deduct is limited to $5,000. See Reduced Dollar Limit under How To Figure the Credit, later.)
These tests are presented in Figure 33.A and are also explained in detail in this chapter.
Figure 33.A Can You Claim the Credit?
Who Is a Qualifying Person?
Your child and dependent care expenses must be for the care of one or more qualifying persons.
A qualifying person is:
- Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart, later),
- Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the year, or
- A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year, and either:
- Was your dependent, or
- Would have been your dependent except that:
- He or she received gross income of $4,050 or more,
- He or she filed a joint return, or
- You, or your spouse if filing jointly, could be claimed as a dependent on someone else’s 2017 return.
Dependent defined. A dependent is a person, other than you or your spouse, for whom you can claim an exemption. To be your dependent, a person must be your qualifying child (or your qualifying relative).
Qualifying child. To be your qualifying child, a child must live with you for more than half the year and meet other requirements.
More information. For more information about who is a dependent or a qualifying child, see chapter 3.
Physically or mentally not able to care for oneself. Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves.
Person qualifying for part of year. You determine a person’s qualifying status each day. For example, if the person for whom you pay child and dependent care expenses no longer qualifies on September 16, count only those expenses through September 15. Also see Yearly limit under Dollar Limit, later.
Birth or death of otherwise qualifying person. In determining whether a person is a qualifying person, a person who was born or died in 2017 is treated as having lived with you for more than half of 2017 if your home was the person’s home for more than half the time he or she was alive in 2017.
Taxpayer identification number. You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). If the correct information is not shown, the credit may be reduced or disallowed.
Individual taxpayer identification number (ITIN) for aliens. If your qualifying person is a nonresident or resident alien who does not have and cannot get a social security number (SSN), use that person’s ITIN. The ITIN is entered wherever an SSN is requested on a tax return. To apply for an ITIN, see Form W-7, Application for IRS Individual Taxpayer Identification Number.
An ITIN is for tax use only. It does not entitle the holder to social security benefits or change the holder’s employment or immigration status under U.S. law.
Adoption taxpayer identification number (ATIN). If your qualifying person is a child who was placed in your home for adoption and for whom you do not have an SSN, you must get an ATIN for the child. File Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions.
Child of divorced or separated parents or parents living apart. Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if:
- The child was under age 13 or was not physically or mentally able to care for himself or herself,
- The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year,
- The child was in the custody of one or both parents for more than half the year, and
- You were the child’s custodial parent.
The custodial parent is the parent with whom the child lived for the greater number of nights in 2017. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. For details and an exception for a parent who works at night, see Pub. 501.
The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents.
You Must Have Earned Income
To claim the credit, you (and your spouse if filing jointly) must have earned income during the year.
Earned income. Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. A net loss from self-employment reduces earned income. Earned income also includes strike benefits and any disability pay you report as wages.
Generally, only taxable compensation is included. However, you can elect to include nontaxable combat pay in earned income. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. (In other words, if one of you makes the election, the other one can also make it but does not have to.) You should figure your credit both ways and make the election if it gives you a greater tax benefit.
Members of certain religious faiths opposed to social security. Certain income earned by persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes may not be considered earned income for this purpose. See You Must Have Earned Income Test in Pub. 503.
Not earned income. Earned income does not include:
- Pensions and annuities,
- Amounts reported on Form 1040, line 7 excluded as foreign earned income on Form 2555, line 43, or Form 2555-EZ, line 18,
- Medicaid waiver payments you exclude from income,
- Social security and railroad retirement benefits,
- Workers’ compensation,
- Interest and dividends,
- Unemployment compensation,
- Scholarship or fellowship grants, except for those reported on a Form W-2 and paid to you for teaching or other services,
- Nontaxable workfare payments,
- Child support payments received by you,
- Income of nonresident aliens that is not effectively connected with a U.S. trade or business, or
- Any amount received for work while an inmate in a penal institution.
Rule for student-spouse or spouse not able to care for self. Your spouse is treated as having earned income for any month that he or she is:
- A full-time student, or
- Physically or mentally not able to care for himself or herself. (Your spouse also must live with you for more than half the year.)
If you are filing a joint return, this rule also applies to you. You can be treated as having earned income for any month you are a full-time student or not able to care for yourself.
Figure the earned income of the nonworking spouse described under (1) or (2) above as explained under Earned Income Limit, later.
This rule applies to only one spouse for any one month. If, in the same month, both you and your spouse do not work and are either full-time students or not physically or mentally able to care for yourselves, only one of you can be treated as having earned income in that month.
Full-time student. You are a full-time student if you are enrolled at a school for the number of hours or classes that the school considers full time. You must have been a full-time student for some part of each of 5 calendar months during the year. (The months need not be consecutive.)
School. The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. A school does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet.
Are These Work-Related Expenses?
Child and dependent care expenses must be work-related to qualify for the credit. Expenses are considered work related only if both of the following are true.
- They allow you (and your spouse if filing jointly) to work or look for work.
- They are for a qualifying person’s care.
Working or Looking for Work
To be work-related, your expenses must allow you to work or look for work. If you are married, generally both you and your spouse must work or look for work. One spouse is treated as working during any month he or she is a full-time student or is not physically or mentally able to care for himself or herself.
Your work can be for others or in your own business or partnership. It can be either full time or part time.
Work also includes actively looking for work. However, if you do not find a job and have no earned income for the year, you cannot take this credit. See You Must Have Earned Income, earlier.
An expense is not considered work-related merely because you had it while you were working. The purpose of the expense must be to allow you to work. Whether your expenses allow you to work or look for work depends on the facts.
Example 1. The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense.
Example 2. You work during the day. Your spouse works at night and sleeps during the day. You pay for care of your 5-year-old child during the hours when you are working and your spouse is sleeping. Your expenses are considered work related.
Volunteer work. For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary.
Work for part of year. If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work related. However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (2½ months × $250).
Temporary absence from work. You do not have to figure your expenses for each day during a short, temporary absence from work, such as for vacation or a minor illness, if you have to pay for care anyway. Instead, you can figure your credit including the expenses you paid for the period of absence.
An absence of 2 weeks or less is a short, temporary absence. An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances.
Example. You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. You become ill and miss 4 months of work, but receive sick pay. You continue to pay the nanny to care for the children while you are ill. Your absence is not a short, temporary absence, and your expenses are not considered work related.
Part-time work. If you work part-time, you generally must figure your expenses for each day. However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Any day when you work at least 1 hour is a day of work.
Example 1. You work 3 days a week. While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Your child attends the center 5 days a week. Your work-related expenses are limited to $150 a week.
Example 2. The facts are the same as in Example 1 except the center does not offer a 3-day option. The entire $250 weekly fee may be a work-related expense.
Care of a Qualifying Person
To be work related, your expenses must be to provide care for a qualifying person.
You do not have to choose the least expensive way of providing care. The cost of a paid care provider may be an expense for the care of a qualifying person even if another care provider is available at no cost.
Expenses are for the care of a qualifying person only if their main purpose is the person’s well-being and protection.
Expenses for household services qualify if part of the services is for the care of qualifying persons. See Household services, later.
Expenses not for care. Expenses for care do not include amounts you pay for food, lodging, clothing, education, and entertainment. However, you can include small amounts paid for these items if they are incidental to and cannot be separated from the cost of caring for the qualifying person.
Child support payments are not for care and do not qualify for the credit.
Education. Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. Expenses to attend kindergarten or a higher grade are not expenses for care. Do not use these expenses to figure your credit.
However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care.
Summer school and tutoring programs are not for care.
Example 1. You take your 3-year-old child to a nursery school that provides lunch and educational activities as a part of its preschool child care service. The lunch and educational activities are incidental to the child care, and their cost cannot be separated from the cost of care. You can count the total cost when you figure the credit.
Example 2. You place your 10-year-old child in a boarding school so you can work full time. Only the part of the boarding school expense that is for the care of your child is a work-related expense. You can count that part of the expense in figuring your credit if it can be separated from the cost of education. You cannot count any part of the amount you pay the school for your child’s education.
Care outside your home. You can count the cost of care provided outside your home if the care is for your dependent under age 13 or any other qualifying person who regularly spends at least 8 hours each day in your home.
Dependent care center. You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers.
A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit.
Camp. The cost of sending your child to an overnight camp is not considered a work-related expense. The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer.
Transportation. If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualifying person. This includes transportation by bus, subway, taxi, or private car. However, transportation not provided by a care provider is not for the care of a qualifying person. Also, if you pay the transportation cost for the care provider to come to your home, that expense is not for care of a qualifying person.
Fees and deposits. Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they are not directly for care. However, a forfeited deposit is not for the care of a qualifying person if care is not provided.
Example 1. You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. The fee you paid is a work-related expense.
Example 2. You placed a deposit with a preschool to reserve a place for your 3-year-old child. You later sent your child to a different preschool and forfeited the deposit. The forfeited deposit is not for care and so is not a work-related expense.
Household services. Expenses you pay for household services are work-related expenses if they are at least partly for the well-being and protection of a qualifying person.
Household services are ordinary and usual services done in and around your home that are necessary to run your home. They include the services of a housekeeper, maid, or cook. However, they do not include the services of a chauffeur, bartender, or gardener. See Household Services in Pub. 503 for more information.
In this chapter, the term housekeeper refers to any household employee whose services include the care of a qualifying person.
Taxes paid on wages. The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. See Do You Have Household Employees?, later.
Payments To Relatives or Dependents
You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. However, do not count any amounts you pay to:
- A dependent for whom you (or your spouse if filing jointly) can claim an exemption,
- Your child who was under age 19 at the end of the year, even if he or she is not your dependent,
- A person who was your spouse any time during the year, or
- The parent of your qualifying person if your qualifying person is your child and under age 13.
What’s Your Filing Status?
Generally, married couples must file a joint return to take the credit. However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit.
Legally separated. You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. You may be eligible to take the credit on your return using head of household filing status.
Married and living apart. You are not considered married and are eligible to take the credit if all the following apply.
- You file a return apart from your spouse.
- Your home is the home of a qualifying person for more than half the year.
- You pay more than half the cost of keeping up your home for the year.
- Your spouse does not live in your home for the last 6 months of the year.
Note. You may also be able to claim the child and dependent care credit using the married filing separate filing status. See Not legally separated in Pub. 503.
Costs of keeping up a home. The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home.
The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal.
They also do not include the purchase, permanent improvement, or replacement of property. For example, you cannot include the cost of replacing a water heater. However, you can include the cost of repairing a water heater.
Death of spouse. If your spouse died during the year and you do not remarry before the end of the year, you generally must file a joint return to take the credit. If you do remarry before the end of the year, the credit can be claimed on your deceased spouse’s return.
Care Provider Identification Test
You must identify all persons or organizations that provide care for your child or dependent. Use Form 2441, Part I, to show the information.
If you do not have any care providers and you are filing Form 2441 only to report taxable income in Part III, enter “none” in line 1, column (a).
Information needed. To identify the care provider, you must give the provider’s:
- Name,
- Address, and
- Taxpayer identification number.
If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. If the care provider is an organization, then it is the employer identification number (EIN).
You do not have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number.
If you cannot provide all of the information or if the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information.
Getting the information. You can use Form W-10 to request the required information from the care provider. If you do not use Form W-10, you can get the information from one of the other sources listed in the Instructions for form W-10, including:
- A copy of the provider’s social security card,
- A copy of the provider’s completed Form W-4 if he or she is your household employee,
- A copy of the statement furnished by your employer if the provider is your employer’s dependent care plan, or
- A letter or invoice from the provider if it shows the information.
Due diligence. If the care provider information you give is incorrect or incomplete, your credit may not be allowed. However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit.
You can show due diligence by getting and keeping the provider’s completed Form W-10 or one of the other sources of information just listed. Care providers can be penalized if they do not provide this information to you or if they provide incorrect information.
Provider refusal. If the provider refuses to give you their identifying information, you should report on Form 2441 whatever information you have (such as the name and address). Enter “See Attached Statement” in the columns calling for the information you do not have. Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. Be sure to write your name and social security number on this statement. The statement will show that you used due diligence in trying to furnish the necessary information.
U.S. citizens and resident aliens living abroad. If you are living abroad, your care provider may not have, and may not be required to get, a U.S. taxpayer identification number (for example, an SSN or EIN). If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider’s taxpayer identification number.
How To Figure the Credit
Your credit is a percentage of your work-related expenses. Your expenses are subject to the earned income limit and the dollar limit. The percentage is based on your adjusted gross income.
Figuring Total Work-Related Expenses
To figure the credit for 2017 work-related expenses, count only those you paid by December 31, 2017.
Expenses prepaid in an earlier year. If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Claim the expenses for the later year as if they were actually paid in that later year.
Expenses not paid until the following year. Do not count 2016 expenses that you paid in 2017 as work-related expenses for 2017. You may be able to claim an additional credit for them on your 2017 return, but you must figure it separately. See Payments for prior year’s expenses under Amount of Credit in Pub. 503.
Expenses reimbursed. If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you cannot count the expenses that are reimbursed as work-related expenses.
Example. You paid work-related expenses of $3,000. You are reimbursed $2,000 by a state social services agency. You can use only $1,000 to figure your credit.
Medical expenses. Some expenses for the care of qualifying persons who are not able to care for themselves may qualify as work-related expenses and also as medical expenses. You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction.
If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit.
Dependent Care Benefits
If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. See Reduced Dollar Limit, later. But, even if you cannot take the credit, you may be able to take an exclusion or deduction for dependent care benefits.
Dependent care benefits. Dependent care benefits include:
- Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work,
- The fair market value of care in a daycare facility provided or sponsored by your employer, and
- Pre-tax contributions you made under a dependent care flexible spending arrangement.
Your salary may have been reduced to pay for these benefits. If you received benefits as an employee, they should be shown in box 10 of your Form W-2. See Statement for employee, later. Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Enter the amount of these benefits on Form 2441, Part III, line 12.
Exclusion or deduction. If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer can tell you whether your benefit plan qualifies. To claim the exclusion, you must complete Part III of Form 2441. You cannot use Form 1040EZ.
If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. Therefore, you would not get an exclusion from wages. Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. To claim the deduction, you must use Form 2441.
The amount you can exclude or deduct is limited to the smallest of:
- The total amount of dependent care benefits you received during the year,
- The total amount of qualified expenses you incurred during the year,
- Your earned income,
- Your spouse’s earned income, or
- $5,000 ($2,500 if married filing separately).
The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. See Earned Income Limit, later.
Statement for employee. Your employer must give you a Form W-2 (or similar statement) showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1.
Effect of exclusion on credit. If you exclude dependent care benefits from your income, the amount of the excluded benefits:
- Is not included in your work-related expenses, and
- Reduces the dollar limit, discussed later.
Earned Income Limit
The amount of work-related expenses you use to figure your credit cannot be more than:
- Your earned income for the year if you are single at the end of the year, or
- The smaller of your or your spouse’s earned income for the year if you are married at the end of the year.
Earned income is defined under You Must Have Earned Income, earlier.
Separated spouse. If you are legally separated or married and living apart from your spouse (as described under What’s Your Filing Status?, earlier), you are not considered married for purposes of the earned income limit. Use only your income in figuring the earned income limit.
Surviving spouse. If your spouse died during the year and you file a joint return as a surviving spouse, you may, but are not required to, take into account the earned income of your spouse who died during the year.
Community property laws. You should disregard community property laws when you figure earned income for this credit.
You or your spouse is a student or not able to care for self. Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more.
Spouse works. If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month.
Spouse qualifies for part of month. If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $250 (or $500) still applies for that month.
You are a student or not able to care for self. These rules also apply if you are a student or not able to care for yourself and you are filing a joint return. For each month or part of a month you are a student or not able to care for yourself, your earned income is considered to be at least $250 (or $500). If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month.
Both spouses qualify. If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $250 (or $500) for that month.
Dollar Limit
There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons.
Yearly limit. The dollar limit is a yearly limit. The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year.
Reduced Dollar Limit
If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Your reduced dollar limit is figured on Form 2441, Part III. SeeDependent Care Benefits, earlier, for information on excluding or deducting these benefits.
Example 1. George is a widower with one child and earns $24,000 a year. He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. His employer pays an additional $1,000 under a dependent care benefit plan. This $1,000 is excluded from George’s income.
Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. This is because his dollar limit is reduced as shown next.
| George’s Reduced Dollar Limit | |
| 1) Maximum allowable expenses for one qualifying person ................................... | $3,000 |
| 2) Minus: Dependent care benefits George excludes from income .......................... | −1,000 |
| 3) Reduced dollar limit on expenses George can use for the credit .......................... | $2,000 |
Example 2. Randall is married and both he and his wife are employed. Each has earned income in excess of $6,000. They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Randall’s work-related expenses are $6,000 for the year.
Randall’s employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program.
Although the dollar limit for his work-related expenses is $6,000 (two or more qualifying persons), Randall figures his credit on only $1,000 of the $6,000 work-related expense paid. This is because his dollar limit is reduced as shown next.
| Randall’s Reduced Dollar Limit | |
| 1) Maximum allowable expenses for two qualifying persons ................................ | $6,000 |
| 2) Minus: Dependent care benefits Randall selects from employer’s cafeteria plan and excludes from income ......................................................................... | −5,000 |
| 3) Reduced dollar limit on expenses Randall can use for the credit ......................... | $1,000 |
Amount of Credit
To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. This percentage depends on your adjusted gross income shown on Form 1040, line 38; Form 1040A, line 22. The following table shows the percentage to use based on adjusted gross income.
| IF your adjusted gross income is: | ||
| Over | But not over | THEN the percentage is: |
| $0 | $15,000 | 35% |
| 15,000 | 17,000 | 34% |
| 17,000 | 19,000 | 33% |
| 19,000 | 21,000 | 32% |
| 21,000 | 23,000 | 31% |
| 23,000 | 25,000 | 30% |
| 25,000 | 27,000 | 29% |
| 27,000 | 29,000 | 28% |
| 29,000 | 31,000 | 27% |
| 31,000 | 33,000 | 26% |
| 33,000 | 35,000 | 25% |
| 35,000 | 37,000 | 24% |
| 37,000 | 39,000 | 23% |
| 39,000 | 41,000 | 22% |
| 41,000 | 43,000 | 21% |
| 43,000 | No limit | 20% |
How To Claim the Credit
To claim the credit, you can file Form 1040 or Form 1040A. You cannot claim the credit on Form 1040EZ.
Form 1040 or 1040A. You must complete Form 2441 and attach it to your Form 1040 or 1040A. Enter the credit on Form 1040, line 49, or Form 1040A, line 31.
Limit on credit. The amount of credit you can claim is generally limited to the amount of your tax. For more information, see the Instructions for Form 2441.
Tax credit not refundable. You cannot get a refund for any part of the credit that is more than this limit.
Do You Have Household Employees?
If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. If the individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. Self-employed persons who are in business for themselves are not household employees. Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business.
If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion who works in your home, the worker is not your employee. This control could include providing rules of conduct and appearance and requiring regular reports. In this case, you do not have to pay employment taxes. But, if an agency merely gives you a list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee.
If you have a household employee, you may be subject to:
- Social security and Medicare taxes,
- Federal unemployment tax, and
- Federal income tax withholding.
Social security and Medicare taxes are generally withheld from the employee’s pay and matched by the employer. Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Federal income tax is withheld from the employee’s total pay if the employee asks you to do so and you agree.
For more information on a household employer’s tax responsibilities, see Pub. 926 and Schedule H (Form 1040) and its instructions.
State employment tax. You may also have to pay state unemployment tax. Contact your state unemployment tax office for information. You should also find out whether you need to pay or collect other state employment taxes or carry workers’ compensation insurance. For a list of state unemployment tax agencies, visit the U.S. Department of Labor’s website. A link to that website is in Pub. 926, or you can find it with an online search.
