If you qualify, you may be able to claim a credit of up to $3,000 for one child or up to $6,000 for two or more children in our school. This can significantly reduce the effective cost of excellent preschooling for your children! A tax credit is a dollar-for-dollar reduction of your tax liability. Unlike a deduction which reduces your effective income before you look up your tax rate, a credit is applied AFTER you have calculated your taxes and are thus worth a lot more. For example, if your tax rate is 25%, $100 in deductions could reduce your taxes by $25. But a $100 credit can reduce your taxes by $100. To qualify, a you must work or look for work. We are not tax advisors, and you should consult your advisor to make sure you can take your credit correctly. However, it is important to know if you qualify when you are making your childcare decisions. The effective cost for childcare night be about half of what you think it might be. Forms You must complete one of two forms to claim the credit, and attach it to your tax return.     Schedule 2 for Form 1040A     Form 2441 for Form 1040 Eligibility Tests To be able to claim the credit for child care expenses, you must meet all six eligibility tests: Qualifying Person Test Anyone attending our school meets this test. Special rules may apply if you are divorced or are a custodial parent. Keeping up a Home Test To claim the child and dependent care credit, you must pay more than half the cost of keeping up a home for yourself and your child. This does not include buying a home. Most homeowners or renters will meet this test. Earned Income Test You (AND your spouse if married) must have earned income during the year. Being a full-time student qualifies as earning some income, according to their schedule. Joint Return Generally, married couples who wish to take the credit for child care must file a joint return. However, if you are legally separated or living apart from your spouse, you may file separate returns and still take the credit. Provider Identification Test You must provide the name, address and taxpayer identification number of the person or organization who provided the care for their child or dependent. This an easy one, we can provide all this information. General Limit There is a limit on the amount of work-related expenses taxpayers can include in figuring the child care credit. The limit is the smallest of the following amounts for the year: The lower paid spouse’s earned income. Married taxpayers usually must both work (have earned income) in order to claim the credit. If a spouse is either a full-time student during any five months of the year, or is not capable of caring for himself or herself for some period during the year, a credit can still be claimed. The single taxpayer’s earned income The actual expenses paid, or The overall limit of $3,000 for expenses paid for one qualifying child or $6,000 for two or more qualifying children. Some taxpayers receive dependent care benefits from their employers. If so, the overall limit of $3,000/$6,000 is reduced, dollar for dollar, by any reimbursement excluded from the taxpayer’s income. The amount of dependent care benefits received is shown in box 10 of the taxpayer's Form W-2.
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Child and Dependent Care Tax Credit
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