The IRS can help you look after your kids… sort of. Child care expenses can be a major part of a families’ budget, especially in the summer when the kids are out of school. Parents are able to alleviate some of the costs associated with child care through a non-refundable credit that offsets tax liability at year end. This credit is available for children under the age of 12 whose parents incur qualifying childcare expenses. Qualifying expenses include: daycare centers, babysitters and summer camps. Expenses for schooling, tutoring and overnight camps do not qualify. The childcare provider must be used so that the parents can work or search for work. Expenses paid to a babysitter so you can enjoy a night out on the town, won’t qualify.
The IRS limits the dollar amount allowed for the credit calculation, so the credit will not pay for all your expenses. Taxpayers are allowed to base the credit on expenses for up to $3,000 for 1 child or $6,000 for 2 or more children. The maximum expenses allowed in determining the credit is $6,000. It’s important to keep in mind, similar to many IRS credits, the amount allowed varies with the level of earned income. As you move to a higher tax bracket, the amount of credit begins to phase-out. Once the expenses are determined, the credit is calculated based off of a percent ranging from 20% – 35%, depending on level of earned income. The higher earned income, the lower the percentage of expenses you’ll be allowed to take.
To take advantage of this credit IRS Form 2441 will need to be completed with Form 1040.