Credits, Personal Finance - Monday, November 24, 2008 18:09 - 0 Comments

Child Care Credit

In today’s society, two income families are the norm.  Both parents have to work to pay the bills.  That means the children need to be looked after by a trusted third party.  The government wants to reward those dedicated parents at tax time.

 Regardless of whether it is by means of a day care center, a family member, a close friend, or a hired nanny, the price of child care is anything but cheap.  The child and dependent care credit, however, allows parents and guardians of children to receive money back from the government based on the money they have spent on child care throughout the year.

 Parents and legal guardians of children that have had to pay for a child care under the age of thirteen can apply for the child care credit.  In order to use a child as a means for application the child must live with you for a minimum of six months of the year.

 Only children who are claimed as dependents and tax exemptions on your federal tax returns can be used to apply for the child care credit.  In the case of couples with children who are now divorced or no longer living in the same home, only the parent who lives in the child’s primary resident is permitted to claim the tax credit.

 The price of private school tuition is not applicable under the child care credit, but instead can be counted as part of the educational concerns category where it does indeed count towards a deduction.  After school day care programs that are charged a price apart from regular tuition is applicable.

 Dependent care spending accounts are not against the rules when applying for the child care credit.  One thing that is often misunderstood is how the money in a dependent care spending account is reported on the tax forms.  This money is used to pay child care bills, but it is done on a tax-free basis.  As such, it cannot be applied to the child care credit.

 Parents who are in this situation can still claim the child tax credit, but not a dependent care credit.  Any expenses over and above the amount that was set aside in the dependent care plan are eligible for the child care credit.  The credit received can be anywhere from twenty to thirty-five percent of the total amount of money spent on child care.

 For parents who have worked hard to pay for their children’s child care, the child care credit is quite beneficial.  The money they spend earns them both the child care credit and a child tax credit.