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A Mother's Day tax gift: 10 child care tax credit tips

Happy Mother's Day, not just to the women with children, but to those who help take care of the kids.

I'm not just talking dads here, although fathers are much more involved in their children's lives now than they were a few generations ago.

I'm thinking of day care employees.

There were 862,043 day care services employees across the country in 2013, the year with the most complete data as compiled by the U.S. Census Bureau. 

Fort Jackson Famy Child Care center_Kris Gonzalez_FMWRC US Army Flick CCKasey Tanner, a Fort Jackson Family Child Care provider, shows two toddlers how to play with an educational toy. Photo by Kris Gonzalez, Fort Jackson Leader, via U.S. Army and Flickr Creative Commons.

These workers, many of whom are women with children of their own, are a major reason that other mothers are able to juggle the demands of parenthood and careers. Their work with other moms' kids earns them this week's By the Numbers honors.

It also earns working moms a tax break, the child and dependent care credit

As the name indicates, the tax credit is not limited to child care costs. On this holiday, however, here are 10 things to know about claiming the tax credit for the costs of caring for your kid(s).

1. Work is required.
The credit is not a way to get Uncle Sam to help finance a break from your brood. You, and your spouse if you're married, must pay someone to look after your children so that you work. This means an activity for which you receive earned income during the year. Actively looking for work also counts for credit purposes.

If you're married, both you and your spouse must work (or be looking for a job) to claim the credit. You cannot take it, however, if your filing status is married filing separately.

2. Child's age matters.
The credit is available for care of dependents other than children. But in the case of child care, the youngster must be a dependent who is under age 13 when the care is provided. If the child turned 13 years old during the tax year, you can claim a credit only for the portion of the year that the youngster was 12. 

3. In-home or outside care count.
Credit-eligible child care may be provided by someone who comes to your home or who operates an outside facility. Note, however, that the care provider cannot be your spouse, the parent of your qualifying child, another one of your children who is younger than 19 or a dependent that you claim as an exemption on your tax return.

Remember, too, that if you pay a provider to offer care in your home, you may be a household employer, which has its own set of tax responsibilities. Details are in Internal Revenue Service Publication 926, Household Employer's Tax Guide.

4. School is not day care.
I can hear the teachers across the country cheering. The tax code considers expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten as care costs.

But once the youngster starts attending kindergarten or a higher grade, any associated costs do not count as day care expenses. Similarly, summer school and tutoring programs are not for care. You may be able, however, to include before- or after-school care costs of a child in kindergarten or a higher grade.

5. Name your care provider.
You must identify all persons or organizations that provide the tax-break-eligible care. This means putting the caregiver's name, address and taxpayer identification number (either the Social Security number or the employer identification number) on your return.

6. Dollar amounts are limited.
Only $3,000 in child care costs care costs count toward the credit if only one child is in day care. If you have two or more children being looked after while you're at work, you can claim up to $6,000 in care costs. Good news: The limit doesn't have to be divided equally among the kids. If, for example, you paid $1,200 during the year for day care of Sally, and $4,800 for Bobby's care, you can use the $6,000 total when figuring your tax credit.

If you also get any tax-free workplace benefits to help pay for dependent care, you must subtract that amount from your qualifying child care expenses.

7. Only a percentage of costs count.
Your actual credit amount is not the allowable dollars you paid your care professional. It's a percentage of that amount. And the percentage is reduced depending on your adjusted gross income (AGI), found on shown on line 38 of Form 1040 or line 22 of Form 1040A.

The child care percentages for AGI ranges are show in the table below:

If your AGI is between: Your credit percentage is:
$0 and $15,000 35%
$15,001 and $17,000 34%
$17,001 and $19,000 33%
$19,001 and $21,000 32%
$21,001 and $23,000 31%
$23,001 and $25,000 30%
$25,001 and $27,000 29%
$27,001 and $29,000 28%
$29,001 and $31,000 27%
$31,001 and $33,000 26%
$33,001 and $35,000 25%
$35,001 and $37,000 24%
$37,001 and $39,000 23%
$39,001 and $41, 000 22%
$41,001 and $43,000 21%
$43,001 or more 20%

The percentage restrictions mean that the maximum child care credit amount for one kiddo is $1,050 ($3,000 x 0.35) and $2,100 ($6,000 x 0.35) for the care costs of two or more children.

8. No refunds allowed.
Most parents will tell you that $1,050 or $2,100 is not nearly enough to cover their kids' day care costs. But the nice thing about the child and dependent care credit is that it is a tax credit. That means it reduces your tax liability dollar-for-dollar. If your tax bill is $2,500, a $2,100 credit will cut that to $400.

Unfortunately, the credit is not refundable. That means if your tax bill is $2,000, that $2,100 credit will wipe out what you owe but you won't get the excess $100 credit amount as a refund.

9. Forms you need to file.
Claim the credit on IRS Form 2441, Child and Dependent Care Expenses, and file it with your 1040 or 1040A. You can't claim the credit if you file 1040EZ. If you received dependent care benefits from your employer (the amount will be listed on your W-2), you also must complete Part III of Form 2441. 

10. Get more child care credit help.
In addition to the forms and their instructions you need to file for the child care credit, you can get more information from IRS Publication 503, Child and Dependent Care Expenses. The agency also has an online interactive tool, Can You Claim the Child and Dependent Care Credit?, to help you determine your credit eligibility.

Uncle Sam and I hope this tax credit information helps make your parenting life a little easier and your tax bill a little lower.

But worry about things like taxes tomorrow. Today, Moms, kick back and let your families take care of you.

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