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Child and Dependent Care Tax Credits This Summer

by | 52 tax Tips and Weekly Financial Blog for 2023



Holding those little ones in your arms and slowly guiding them through the path of life is surely
one of the most joyous and fulfilling experiences of a lifetime. But there is no denying that it can
be hard on your pocketbook. Catherine, a mother of two children aged 7 and 10, experiences this
dichotomy between the pleasure of child rearing and its pinching effect on the pocketbook. So, to
alleviate the effect, you must use the choice of child and dependent care tax credits to the best of
your abilities.

This week we will discuss child and dependent care tax credits and filing Form 2441. If you have
a child under the age of 13, or an incapacitated spouse or parent, you may be able to take a
dependent care credit on your individual tax return.

For 2023 the maximum allowed credit with one child is $4,000. With multiple dependents, the
maximum allowed credit is $8,000 for 2 or more dependents. Each year the amount of the credit
may change. Your tax professional will know that limit.

To claim this credit, you will need the name, address, and taxpayer identification number of the
dependent care provider. The money paid to the provider is income to them that must be
reported. You will also need receipts for the payments made to the dependent care provider, to
give to your tax preparer. There are certain rules that must be considered to find out if your
income level is too high to take this credit, and your tax preparer will be able to help you figure
this out.

Some employers offer pre-tax dependent care benefits. If you have dependents that fall into these
categories, usually it will be helpful to use your employer’s pre-tax dependent care plan. It will
save you taxes to use an employer’s plan, but it will also limit the dependent care credit you are
eligible for. Your accountant can help with this decision.

Here are 10 facts from the IRS about this important Dependent Care tax credit:

1. You may qualify for the credit if you paid someone to care for your child, dependent or
spouse last year.

2. The care you paid for must have been necessary, so you could work or look for work, or
attend school. This also applies to your spouse if you are married and filing jointly.

3. The care must have been for ‘qualifying persons.’ A qualifying person can be your child
under age 13. Such a qualifying person may also be a spouse or dependent who is physically
or mentally incapable of self-care, regardless of age. They must also have lived with you for
more than half the year.

4. You, and your spouse if you file jointly, must have earned income, such as wages from a job.
Special rules apply to a spouse who is a student or disabled.

5. The payments for care can’t go to your spouse, the parent of your qualifying person or to
someone you can claim as a dependent on your return. Care payments also can’t go to your
child under the age of 19, even if the child isn’t your dependent.

6. The credit is worth up to 50 percent (%) of the qualifying costs for care, depending on your
income. That credit is limited, based on the number of dependents, your childcare expenses
and your taxable income.

7. Overnight camp or summer school tutoring costs do not qualify. You also cannot count the
cost of care given by a person you can claim as your dependent. Special rules apply if you
get dependent care benefits from your employer. For more see Form 2441, Child and
Dependent Care Expenses.

8. You must include the Social Security number of each qualifying person to claim credit. You
must report this information when you claim the credit on your tax return.

9. You must include the name, address and tax identifying number of your care provider to
claim the credit. This is usually the Social Security number of an individual or the Employer
Identification Number of a business.

10. Remember that this credit is not just a summer tax benefit. You may be able to claim it for
the care you pay for throughout the year. To claim credit, attach Form 2441 to your tax

Be sure to consider the following when preparing Form 2441 for Dependent Care Tax
Credits. Here are some points to remember:

The maximum amount of expenses allowed for one dependent and multiple dependents is
limited each year. Ask Azmoneyguy or your tax professional for the amounts.

You need the name, address, and taxpayer identification number of the dependent care
provider to complete Form 2441.

If your employer offers dependent care reimbursement, that will reduce the credit amount
that is available to you, dollar-for-dollar.

This credit helps reduce regular income tax but may not reduce alternative minimum tax (be
sure to see Azmoneyguy or your tax professional for specifics).

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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Mr. Hockensmith has been a guest newscaster for national and local TV stations in Phoenix since 1995, broadcasting financial and tax topics to the general pubic. He has written tax and accounting articles for both national and local newspapers and professional journals. He has been a public speaker nationally and locally on tax, accounting, financial planning and economics since 1992. He was a Disaster Reservist at the Federal Emergency Management Agency, for many years after his military service. He served as a Colonel with the US Army, retiring from military service after 36 years in 2008. Early in his accounting career, he was a Accountant and Consultant with Arthur Andersen CPA’s and Ernst & Young CPA’s.

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