If you incur employment-related expenses in providing care for one or more qualifying persons, you may be allowed to claim a nonrefundable tax credit on Form 2441 of your federal tax return.
What is a qualifying person? A qualifying person is typically your dependent child who must be age 12 or younger when the care was provided.
What care qualifies? Nursery school, preschool and similar pre-kindergarten programs are considered child care expenses. Day camp expenses do qualify for the credit but keep in mind expenses for overnight camps do not qualify.
How does one get the credit? To claim the credit, you must have earned income such as wages or self-employment income. If your spouse isn’t working, generally the credit isn’t allowed. Depending on your adjusted gross income, the credit will range from 20% to 35% of your qualified expenses. The maximum qualified expenses that can be used in calculating the credit for a year for one qualified individual is $3,000. For two or more qualifying individuals, $6,000 is the maximum. Keep in mind that if your employer provides dependent care benefits, you must reduce your qualified expenses for those benefits in computing your tax credit. If your employer allows you to pay for child care using “pre-tax” dollars, your tax savings may be greater than claiming the credit on your personal tax return so be sure to check which way benefits you the most.
What documentation does one need to claim the credit? For preparation of claiming the credit on your tax return, make sure you have available daycare receipts that provide the name, address and taxpayer identification number (social security number or employer identification number) of the person who provided the care and how much was paid during the year.