To claim a credit for child and dependent care expenses, seven tests must first be met:
1. The person must be a qualifying person. This includes:
a. Your child who is your dependent and under age 13 at the time the care was provided.
b. Your spouse who lived with you for more than half the year and was not physically or mentally able to take care of themselves.
c. Other persons who lived with you for more than half of the year and were not physically or mentally able to take care of themselves. They either must be your dependent or they would have been your dependent if not for certain exceptions.
2. Both spouses must have earned (wages or self-employment)income with certain exceptions:
a. One spouse is a full-time student.
b. One spouse is physically or mentally unable to care for themselves.
c. One spouse is looking for work.
3. The reason for the child care must be so that you and your spouse can work or look for work. Child care expenses incurred for other reasons are not deductible.
4. The care provider cannot be your spouse, a dependent, or the parent of your qualifying child.
5. You cannot file a Married Filing Separately return and claim child and dependent care expenses.
6. The child or dependent care provider’s address and social security or federal ID number must be included on your return.
7. If you receive child care benefits from your employer of $3,000 or more for one child ($6,000 for more than one child), than you cannot claim a credit for child and dependent care expenses.
Other special circumstances include:
1. Expenses for kindergarten, grade school, or summer school are not deductible child care expenses.
2. Day camp expenses are qualifying expenses however; overnight camp expenses do not qualify.
3. If the parents of a qualifying child are divorced, only the custodial parent may claim child care expenses. The custodial parent is the parent that the child lived with for more than half of the year. If the child lived with each parent for half of the year, then the parent with the larger adjusted gross income may claim the child care expenses.
The amount of the credit is calculated as follows:
1. You and your spouse must have earned income of at least $3,000 each (maximum for one child, up to $6,000 for two or more children.) in order to claim the full credit.
2. The credit starts at 35% of expenses (up to $3,000) for one child ($6,000 for more than one child) and phases out (at adjusted gross income of $43,000 or more) to a minimum of 20% of expenses.