Tax Tips: Child and dependent care credit

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You may be eligible for a tax credit of up to $3,000 (one child) or $6,000 (two or more children) for child care costs incurred to allow you to be gainfully employed. The qualifying child (or other dependent) must be unable to care for herself or himself and living with the taxpayer. A child must be under the age of 13 to qualify.

In order to claim the credit, the taxpayer must report the social security number of the person providing the child care, or the federal identification number of the daycare center providing the care. If one spouse is not working, no credit is allowed. (One exception to this may occur if the spouse is a full-time student.) If both spouses are working, the eligible child care costs cannot exceed the wages of the lower earning spouse.

The amount of the credit is usually 25% to 35% of the qualifying child care expenses, but the rate changes depending on the income of the taxpayer. One note: Tuition at a preschool or private school is not considered a qualifying daycare expense.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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