By Thomas Van Blunk and Jaclyn Martello
Did you know that to claim a childcare tax credit, you need to show expenses that qualify for the credit and have documentation to back up any childcare-related expenses? If you are thinking about claiming this credit, it is important to understand the process and how it works. If curious about state tax laws regarding childcare credits, your state tax website should have all the information you will need.
Your expenses will qualify if you pay someone to care for your child while you are at work for the day. However, when it comes to what expenses qualify for the childcare tax credit, you must prove that you are actively paying someone while you and your spouse are working. For example, if during the summer months you pay for a day camp to watch your children as you and your spouse work during the week, the cost of the camp would qualify as an expense for the childcare tax credit. However, if you decide to send your child to that same day camp on the weekend because you or your spouse wanted to go on a personal trip, it will not count as a qualified expense. It is important to note that if you and your spouse are filing separately, there are special rules and requirements you may have to follow. Please check the IRS website for more information.
In order to claim the childcare tax credit, you need to have earned income. You must summarize childcare expenses through the filing of Form 2441, Child and Dependent Care Expenses. You will need your childcare provider to fill out a Form W-10 in order to obtain pertinent information such as their name, address, and taxpayer identification number. If you are unable to get a W-10 you will need the following documents from the childcare provider: social security card, a copy of the provider’s W-4 or employee withholding certificate if they are a household employee, a copy of the statement furnished by your employer if they provide the service, and a recently printed letterhead or invoice that shows their name, address, and TIN. After obtaining these forms, you should have enough information to fill out Form 2441, Child and Dependent Care Expenses.
This information has been prepared for informational purposes only, and is not intended to provide, and should not be relied upon for tax, legal, or accounting advice. If you have any questions regarding child and dependent care expenses, please do not hesitate to contact us at Lear & Pannepacker.