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Home » Jobs & Money » Tax Tips » Dependent Care Credit Helps With Daycare Or A Nanny

Dependent Care Credit Helps With Daycare Or A Nanny

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Are you sending your kids to daycare? Or, do you have a nanny?

Well, if you do you’re in luck. There’s a tax credit made just for you.

Good news! This is a tax credit that all working parents can take regardless of your income. The Dependent Care Credit (also known as the Child Care Credit) is available to all taxpayers who pay for child care in order for them to work.

The credit is applied to all qualifying expenses up to a maximum credit of $4,000 for 1 qualifying child and $6,000 for 2 or more qualifying children.

See “What is A Qualifying Child?”

However, like most tax credits, the percentage you may take decreases for higher incomes. The credit percentage is 35% (of the $4000 or $6000 credit) for individuals/couples with gross incomes of $15,000 or less. The rate is then gradually reduced by 1% for each $2,000 over the $15,000 income threshold until you reach an income of $43,000. All incomes greater than $43,000 will receive a credit of 20%.

Example #1: John and Sue both work and leave their 2 children with a nanny. They make a combined income of $65,000. Because their income is greater than $43,000, they can claim a dependent care credit of $1,200 (20% of $6,000).

Example #2: Ashley is a single mom with 1 child she takes to daycare while she works. Her income is $29,000. Her dependent care credit is calculated the following way:
$29,000 – $15,000 = $14,000
$14,000/$2000 = 7
35% – 7% = 28%
28% x $4,000 = $1,120
Therefore, Ashley can claim a Dependent Care Credit of $1,120.

Both of the above examples assume that at least $4,000 of eligible childcare expenses were incurred.

Finally, the only downside to the Dependent Care Credit is that it is a non-refundable credit. This means that if the amount of taxes you owe are less than the amount of your credit, you will not receive any money back.

Alix
Alix

Very few people use the words fun and taxes together… and don’t worry, I’m not one of them. I hope to make taxes easier to understand and less of a hassle. I am a CPA with a Master’s in Accounting, and I’ll do my best to help explain many of the tax options available today.

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Filed Under: Jobs & Money, Tax Tips Tagged With: tax credits and deductions

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LynnetteWith input from Financial Advisors, (a Tax Accountant and an Investment Manager), I share helpful tips regarding money and finances -- including debt relief, insurance, budgeting, and investing for retirement. My goal is to help you save more, spend less, and invest for the future by sharing honest, tried & true budgeting tips and tools. When I'm not saving for the future and helping others save for theirs, you can find me at the corner of Good News & Fun Times as publisher of The Fun Times Guide (32 fun & helpful websites).

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AndreaI have been a certified tightwad striving for financial freedom since I became pregnant with my first child -- and I decided to find a way to stay home with him full-time. I enjoy sharing my personal experiences in my journey back to financial health and planning for a future -- which will include sending 2 kids to college and early retirement.

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