| With school out for the summer, working parents will | | | | rises (at $43,000 adjusted gross income, the credit falls |
| not only need to arrange care for their children while at | | | | to 20 percent of expenses). Additionally, the child and |
| work, but how to do so in a cost effective way. For | | | | dependent care credit is nonrefundable, meaning that |
| parents facing a summer season that requires juggling | | | | any excess credit can not be carried over and used in |
| childcare and work (or finding work), the IRS provides | | | | later years to reduce your tax bill. |
| a few tax breaks that can help make this balancing | | | | Comment. The $3,000 and $6,000 credit amounts |
| act a little less painful to the pocket. From the cost of | | | | must be further reduced by any child and dependent |
| day camp to summer school, how do you determine | | | | care benefits that your employer provides and that |
| what kind of childcare is a deductible expense and | | | | you exclude from your income. |
| what is not? Let's take a look. | | | | Camp to day care, what expenses qualify? |
| Child and dependent care credit | | | | To qualify for the credit, deductible expenses must be |
| The child and dependent care credit is a popular credit | | | | incurredfor the "care" of your child. With the dollar and |
| that, in part, enables you and your spouse (if married) | | | | percentage limitations, the child and dependent care |
| to reduce your taxes by the cost of certain qualifying | | | | credit will likely not pay for all of the expenses you |
| expenses you incur to have someone care for your | | | | incur to have someone care for your child (or children) |
| child or children who are under age 13 so that you can | | | | when you're at work, or looking for work this summer. |
| work or look for work. | | | | The IRS considers expenses are "for care" if their |
| While the credit applies to a wide range of childcare | | | | main purpose is the individual's well-being and |
| services, there are a variety of popular childcare | | | | protection. |
| services that do not qualify. Not only are there limits on | | | | Expenses that do not qualify for the child and |
| the types of care and services that qualify, but the | | | | dependent care credit: |
| credit is also subject to income and percentage | | | | Kindergarten (the IRS considers both full-time and |
| limitations as well. | | | | part-time kindergarten a non-qualifying educational |
| Eligibility and amounts | | | | expense); Overnight camp; Summer school; Tutoring |
| For 2008, you can claim up to $3,000 of deductible | | | | programs; and Private school. |
| expenses paid in the year for one qualifying individual, | | | | Expenses that qualify for the child and dependent care |
| or $6,000 for two or more qualifying individuals, under | | | | credit: |
| the dependent and child care credit. However, as | | | | Day camps or similar programs (even if the camp |
| discussed below, the credit can only be taken for up to | | | | specializes in a particular activity, such as reading, |
| 35 percent of qualifying expenses. This means that | | | | writing, tennis, or computer skills); Nursery school, |
| you essentially will not be able to claim the full $3,000 | | | | pre-school, or similar programs for children below the |
| $6,000 amount. Additionally, to be eligible for the credit, | | | | kindergarten level; Expenses for before- or |
| you and your spouse must meet certain conditions, | | | | after-school care of a child in kindergarten or higher |
| including: | | | | may be expenses for care; Fees you paid to an |
| You and your spouse (if married) must have earned | | | | agency to obtain services of a care provider; and |
| income from wages, salaries, tips, other taxable | | | | Indirect expenses, such as application fees, agency or |
| compensation, or net earnings from self-employment | | | | pre-school deposits, that you paid for purposes of |
| for the year; The deductible expenses must be made | | | | obtaining child care. |
| for children age 13 or younger; The expenses must | | | | Flexible Spending Accounts |
| have been incurred to enable you and your spouse to | | | | Instead of taking the child care credit, consider taking |
| work or look for work (unless you or your spouse is a | | | | advantage of a flexible spending account that covers |
| full-time student or incapacitated); The care payments | | | | dependent care expenses. Employers who allow |
| must be made to someone you and your spouse | | | | medical flexible spending accounts usually have one |
| cannot claim as a dependent; and: Your child must | | | | for dependent care as well. |
| have lived with you for more than half of the year. | | | | Contributions are pre-tax and, unlike the child and |
| Percentage and more restrictions | | | | dependent care credit, they are not limited by adjusted |
| Another restriction limits the actual credit amount you | | | | gross income. If you take the credit, however, you |
| can take to a percentage of your expenses. | | | | can't double dip and pay for the expenses through a |
| Depending on your income, the credit can reach up to | | | | flexible spending account. |
| 35 percent of your expenses. Thus, the potential | | | | Some employers go one step better for their |
| maximum credit you can claim for 2008 is only $1,050 | | | | employees than sponsoring a dependent care flexible |
| (35 percent of $3,000) for the care of one qualifying | | | | spending account: they provide on-the-premises day |
| child, and $2,100 for the care of two children under the | | | | care facilities. If set up properly, it can be a win-win for |
| age of 13. | | | | employers and employees. |
| The credit falls to 20 percent as your income level | | | | |