Since Congress passed the Tax Cuts and Jobs Act in 2017, many have mistakenly believed that the child care tax credit is gone for now. It is not. Congress wanted to assist working parents of children under 13 years of age (and those caring for qualified dependents) and guardians by giving them a generous tax credit for certain payments made in connection with the child or dependent. If your child or children or dependent qualify, you can deduct up to 35% of certain expenses per tax year up to $3,000 for one child or dependent, or up to $6,000 for two or more children or dependents.
What payments made for the child will qualify for the credit? If you paid for summer camp, child care, licensed day care, a baby sitter or other care provider for the child, you may qualify for the tax credit if it facilitated your ability to work. Also, if you paid for a cook, maid or housekeeper who cared for the child, the credit will apply. Summer camp expenses will qualify if the child was enrolled to provide care while one or both parents worked. Even before-school and after-school care will qualify if it freed the working parent to stay at work. Note that expenses for tutoring, private school tuition and overnight camps would not qualify. As I noted above, providing care for a dependent adult can qualify for the credit as well.
Who can qualify for the credit? The tax law has a specific set of rules to determine if a parent or guardian of a qualified child or dependent can take the credit. The child care provider cannot be your spouse, the dependent or the child’s parent. You and your spouse (if you are filing as ‘married, filing jointly’) must have earned income for the tax year. You can be a full-time student or even have been unemployed for part of the tax year. You must be the custodial parent or main caretaker of the child or the dependent to take the credit. Your tax filing status must be single, head of household, qualifying widow/widower with a qualifying child, or file as ‘married, filing jointly’, as I mentioned above.
Who can qualify to give you the credit? For purposes of the Act, the qualifying child must be 13 years or age or younger. The qualifying dependent must be disabled and physically or mentally incapable of self-care. The disabled dependent can be any age, not just a minor child under 13 years of age. The Act can also cover your spouse if your spouse is a disabled adult, and in that situation the I.R.S. has waived the requirement for the disabled spouse to have earned income.
There are a number of special circumstances that might apply to your specific situation, many of which are designed to expand the list of those qualified to take the credit. Of interest here is that for divorced or separated but not divorced parents, the ‘custodial parent’ (that is, the parent with whom the child lives for most nights of the tax year), can take the credit even if the other parent has the right to claim the child as a dependent due to the divorce agreement or a separation agreement.
As you can see, there are great advantages to the credit and some ‘slippery slopes’ in deciding if you may qualify to claim the credit in a divorce setting. It is imperative that you consult with a qualified family law attorney or your tax professional to secure the correct advice before claiming the credit on your Federal individual income tax return (Form 1040).