Expenses for Dependent Care
You May be Able to Claim a Tax Credit
If you incur expenses for the care of
your dependent child, enabling you to work or look for work, you are
entitled to a tax credit based on the amount you pay. If you are married,
you must file a joint return and both you and your spouse must work,
unless one of you is disabled.
The child must be under age 13. Care expenses for older children and
adults can also count toward the credit if the individual in physically or
mentally incapable of self-care.
If your employer provides a pre-tax dependent care benefit or flexible
spending account (FSA), up to $5,000 of
qualifying benefits can be tax-free if used to pay dependent care costs.
If you cannot claim your child as a dependent, the money you deferred into
your dependent care plan through your employer will be included in your
income.
Rules for Divorced Parents
Often a divorce or separation agreement
will require that the noncustodial parent pay for child care.
Pre-tax dollars you defer will become taxable if you are the noncustodial
parent, even if you are entitled to the dependency deduction. Your child
must live in your home for more than half the year before you are entitled
to a child- or dependent-care credit.
