The dependent care credit may be changed by Congress in the coming years, but you can still take advantage of it now. It offers some surprising benefits that may apply to your situation.
Under current law, the credit may be claimed for the expenses of caring for children under age 13, as long as both parents work. The credit is equal to between 20 percent and 35 percent of your qualified expenses, depending on your income.
The percentage applies to the first $3,000 of qualified expenses for one dependent and $6,000 for two or more dependents. For example, if a couple has an adjusted gross income (AGI) of $150,000 and three young children, the maximum credit they can claim is $1,200 (or 20 percent of $6,000 in expenses).
Typically, the credit is associated with expenses like daycare centers and nurseries, but in-home babysitters may qualify, too. Furthermore, you may claim the credit for childcare expenses paid to a relative who is not your dependent, such as a niece or nephew. You may even claim the credit for childcare expenses provided to your own child, if he or she is over age 18. You may also take a credit for wages paid to a domestic worker who provides other services, like cooking or light household chores related to the care of the qualifying individual.
Perhaps you have plans to send your child to summer camp this year. The cost of day camp also qualifies for the credit (but not overnight camp).
Finally, be aware that the current credit isn't limited to just childcare expenses. If you incur expenses for the care of a dependent relative, such as an elderly parent, the credit is available with the same limitations discussed above. Give us a call to discuss whether the dependent care credit can be of benefit to you.
