That money you are paying is also includible as income to the person you are paying which is why some caregivers want to refrain from giving you the required information.
The info you will need to complete your taxes includes:
–Federal ID number of the company you are paying or Social Security number of that person
–The person or company’s name and address
–The amount you paid for the tax year and if any of that was for a different year
TIP: This is a big one. The credit is based on up to $3,000 paid for one child or $6,000 based on more than one. So….. if a second child gets just 1 hour of qualified childcare during the year for $20 for instance….you can include up to $5,990 paid for that second child. And the credit is a minimum of 20% with no income limitation. Getting that 12 1/2 year old into a couple hours at your toddlers daycare during the year really can pay off!!!
The credit can only decrease the tax on your tax return so if you aren’t paying any tax then you don’t end up benefiting.
The child must have been under age 13 at the time of the care. If they turned 13 during the year you can use the costs from before their birthday.
Costs for care of other dependents, including the spouse of the taxpayer and children over the age of 13 (to name just a few) , qualify if the person is physically or mentally incapable of caring for himself and lives with you over half the year. The person must be your dependent unless they aren’t your dependent only because they made over $4,000 or filed a joint return.
To get this credit, if you are married you must file Joint unless you qualify to file as unmarried.
Payments made to a caregiver who is your spouse, the parent of the child, a person who can be claimed as your dependent or your own under age 19 child all don’t count for this credit.
Daycamps count…..if they sleep at camp they don’t count. Consider asking all those summer camps you used and holiday day camps for the info listed above and use them for the credit. If they are watching kids for money then you should be able to use them for the credit.
Another way there is a tax break on child care is by using a Cafeteria 125 Plan through your employer. You save not only federal tax but social security, state income tax AND local income tax on the amount you have deducted from your pay that you then get reimbursed to pay child care expenses with. Due to these additional savings, this way may be more beneficial than the credit. Also, you don’t lose it by having $0 in tax on your tax return AND it lowers your Adjusted Gross Income which allows for many other benefits. Not all employers offer this benefit and you may lose the money you have set aside from your pay if you don’t end up using it. In addition that income gets added back to your taxable income if you don’t have childcare costs to offset it on your tax return so be careful estimating the amount. The exclusion this way is limited to the smallest of: the qualified expenses, the taxpayers earned income or $5,000 ($2,500 if filed as Married Filing Separate).
In conclusion…….keep track of your childcare costs and get the required identifying info from the caregivers before you pay them as well as receipts when you do pay them.