CDCC helps parents or caregivers cover the cost of qualified care expenses. (Photo: Forbes)
It’s easy to confuse the child and dependent care tax credit with its popular cousin, the child tax credit. It is unique in that it is intended to assist people who work or are looking for work with care-related expenses.
What exactly is the child and dependent care tax credit?
The CDCC is a tax credit for parents or caregivers to help cover the cost of qualified care expenses, such as daycare, for a child under 13, a spouse or parent unable to care for themselves, or another dependent.
If you intend to claim the credit on your tax return, you must have earned income throughout the year and paid for care expenses so that you could work or look for work.
Because the child and dependent care tax credit is nonrefundable, it benefits those who anticipate paying taxes when they file. This means that any taxes owed will be reduced by the credit amount, but taxpayers will not receive a refund for any excess.
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CDCC helps parents or caregivers cover the cost of qualified care expenses. (Photo: Yahoo Finance)
How much is the child and dependent care tax credit worth?
It is worth 20% to 35% of up to $3,000 (for one qualifying dependent) or $6,000 for the 2022 tax year (for two or more qualifying dependents). Your adjusted gross income determines the percentage of qualified expenses that can be claimed.
Who is a CDCC qualifying dependent?
In general, to qualify for the credit, the person for whom you are paying care expenses must be claimed as a dependent on your taxes and be either:
- A child under the age of thirteen.
- A spouse who is unable to care for themselves mentally or physically and has lived with you for more than half the year.
- A person mentally or physically incapable of caring for themselves has lived with you for more than half the year and can be claimed as a dependent on your tax return.
What are care expenses eligible for the child and dependent care credit?
Before you can claim the credit, you must ensure that the care expenses you paid during the year qualify or are approved by the IRS.
What qualifies:
- Nursery school.
- Preschool or equivalent care programs for children below kindergarten.
- Pre- and after-school care.
- A care provider who watches your dependent outside your home.
- A caregiver provides transportation for your qualifying dependent.
- Dependent care center.
- Day camp.
- Fees, deposits, and application fees are paid to caregivers or caregiver services.
Who qualifies as a qualified caregiver?
Only some people are eligible. Others who may be ineligible to provide paid care are:
- The child’s or dependent’s parent (if your qualifying person is your child under age 13).
- You or your spouse can claim another dependent on your tax return.
- Your minor child (under the age of 19).
What is the Child and Dependent Tax Credit?
The CDCC could be claimed on tax returns filed in 2023 if qualifying expenses were incurred in 2022. Two forms must be attached to the standard 1040: Form 2441 and Schedule 3.
