There is no doubt that child care expenses continue to rise and may not be affordable. The Child and Dependent Care Credit is a valuable tax benefit that can ease some of the costs of taking care of dependents while the caregiver (taxpayer) is working or looking for a job.
Here are the key takeaways of the Child and Dependent Care Credit:
- Purpose: The credit helps working parents and caregivers offset the costs of caring for children or dependents while they work or look for work.
- Eligibility: To qualify, the care must be for a child under 13 or a dependent who is physically or mentally incapable of self-care.
- Qualifying Expenses: Expenses can include daycare, after-school programs, and in-home care.
- Credit Amount: The credit is a percentage of qualifying expenses, ranging from 20% to 35%, depending on the taxpayer’s adjusted gross income (AGI).
- Expense Limits: For 2024, the maximum expenses that can be claimed are $3,000 for one qualifying individual or $6,000 for two or more.
- Maximum Credit: The maximum credit is $1,050 for one dependent or $2,100 for two or more, assuming the highest percentage applies.
- Non-Refundable: The credit can reduce your tax liability to zero but won’t result in a refund if it exceeds the amount of taxes owed.
In conclusion, the Child and Dependent Care Credit offers significant financial relief to working parents and caregivers. In the US, 60% of families with children use some form of child care. With rising costs of daycares, after-school programs, and in-home care, this credit can be essential to working families. If you are unsure if you qualify for this tax credit, please reach out to RT Accounting Services.
