If you have children you will be glad to know that the government gives you an allowance for enrolling them in day care. The allowance is known as a credit and it is claimed when you file your income tax return.

The child and dependent care credit is for unreimbursed childcare expenses due to one or both parents working. It is also a non-refundable tax credit, and when I say non-refundable I mean it can be used to reduce the tax on your income BUT not below zero. If you have more credit than tax you can only take the amount that equals your tax.

The child and dependent care credit includes the cost of services for the qualifying dependents well-being and protection. It doesn’t include food or entertainment. To file for the Child and dependent care credit, Form 2441 should be used with either 1040 or 1040a.

Child and dependent care expense must be work related to qualify for this credit.

For you to qualify for this credit, the following qualifications must be met:

• Filing status of single, head of household, qualifying widow or married filing jointly
• Care must be for one or more qualifying person
• Your child or dependents must be under the age of 13 and/or physically or mentally unable to care for themselves and resided with you for more than half the year.
• The childcare or adult services that you pay can’t be a spouse or someone you can also claim a dependent. The provider has to be identify on tax return
• You must be working or looking for work and have earned income

Definition of Terms used in child tax credit calculation

A Qualifying person:

• Your qualifying child, who is your dependent and under the age of 13.
• Your spouse who due to physically or mental reasons is unable to care for themselves
• A person who due to physically or mental reason is unable to care for themselves, has lived with you for more than half the year and either

1. Is your dependent
2. Or would be except they have gross income of 3,900 or more

Earned income

Earned income includes wages, salaries, tips, other taxable employee compensation and net earnings from self-employment. The amount of work related expenses you use to figure your credit cannot be more than: your income for the year (if single), or the smaller amount of you or your spouse’s income (if married).

Dollar Limit

Dollar limit is the dollar limit on the amount of your work related expenses you can use to figure your credit. The limit is 3,000 for one qualifying person or 6,000 for two or more. If you receive dependent care benefits that you exclude or deduct from your income, than you must subtract that amount from the dollar limit.

Work related expenses

Expenses are considered work related if both of the following are true:

• The child care expense allows you and your spouse to work
• The expenses is for a qualifying person as defined above

Your expenses must allow you and your spouse to work or look for work. This means the baby sitting fees you pay so you and your spouse can have a night out in town does not qualify.

Calculating your child tax credit

To determine your child tax credit, multiply your work related expenses by the percentage assigned to your adjusted gross income.