By Harry S. Margolis
While many parents file for a dependent care tax credit for day care expenses for their young children, few are aware that they may be also take the credit, which can be worth up to $3,000 for each dependent, for certain adult dependents.
Unlike a tax deduction which reduces the taxpayer’s taxable income, a credit reduces the tax paid dollar for dollar. Tax deductions often help higher earner’s more than lower earners because they are taxed at a higher rate. For instance, a taxpayer in the highest tax bracket will save 39.6 cents for ever dollar deducted, while a taxpayer in the 15% tax bracket will only save 15 cents on the dollar. Tax credits, on the other hand, reduce taxes dollar for dollar no matter what rate the taxpayer pays.
Parents may take reduce their taxes for payments made for child care expenses that are necesssary for the parents to go to work, up to $3,000 per year for each child and up to $6,000 for each household. (However, parents can’t double-dip. If they are excluding dependent care benefits provided by their employer from their income, they can’t get a credit for the same expenditures.)
The credit is generally available for care provided to children under the age of 13. However, taxpayers also can receive the credit for care provided to:
- A spouse who is physically or mentally unable to take care of himself and who lives with the taxpayer for at least half of the year; or
- A dependent who is physically or mentally incapable of self-care and and lives with the taxpayer for at least half of the year.
An individual is deemed eligible if as a result of a physical or mental defect she is incapable of caring for her hygiene or nutritional needs or requires the full-time attention of another person for her own safety or the safety of others.
A dependent for the purpose of this credit must receive over half of his support from the taxpayer and must be a relative, which may include a child, parent, sibling, grandchild, niece or nephew, or in-laws or step-parents, or step-brothers and sisters.
Further requirements to take the credit include the following;
- The payment must be made to a care provider who is not the taxpayer’s spouse, her own child under age 19, or a dependent of the taxpayer or the taxpayer’s spouse.
- If the taxpayers are married, they must file a joint return.
- The tax return must include the qualifying dependent’s Social Security number.
- The taxpayer must report the name, address and taxpayer ID number for any person or company to which he paid care costs for which he is seeking a credit.
While in most cases, this credit will not cover all of the care costs of a dependent child or other relative, an extra $3,000 to $6,000 certainly can’t hurt.