Claiming the Dependent-Care Tax Credit for 2015
The dependent-care tax credit is based on up to $3,000 in child-care expenses if you have one child or $6,000 if you have two or more children.
I paid child-care expenses of $14,300 for my two children in 2015 and used my dependent-care flexible-spending account at work for $5,000 of those costs. My tax software is saying I can only take $200 for the dependent-care tax credit for 2015 (my taxable income was $115,000). Is that correct?
Your tax software is correct. Even though you had child-care expenses beyond the $5,000 you paid for from the FSA, you can only count $1,000 of those extra expenses toward the credit. At your income level, that translates into a credit of $200.
The dependent-care tax credit is based on up to $3,000 in child-care expenses if you have one child or $6,000 if you have two or more children. The children must be no older than 12, and the care must be provided so you and your spouse can work or look for work (or so one spouse can attend school full-time while the other works). The dependent-care FSA lets employees set aside up to $5,000 in pretax money for child-care expenses, with the same definition of eligible expenses.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
The way the child-care credit is calculated, the amount of money you set aside pretax in your employer’s dependent-care FSA must be subtracted from the $3,000 or $6,000 in eligible expenses for the dependent-care credit. That means if you contributed the maximum $5,000 to your dependent-care FSA at work and have just one child, you won’t be eligible to take the dependent-care credit, too. But if you have two or more children, you can max out your FSA and still take the tax credit for up to $1,000 of eligible expenses.
The size of that tax credit depends on your income. The credit is worth 20% to 35% of your eligible child-care expenses (up to the $3,000 for one child or $6,000 for two children). The higher your income, the smaller the percentage. If your income is more than $43,000, for example, the credit is worth 20% of your eligible expenses (the income limits are the same, whether you’re filing as single, head of household, or married filing jointly). Since you can take the credit for $1,000 of eligible expenses and earn more than $43,000, you qualify for a credit of $200. You can calculate the credit using IRS Form 2441, Child and Dependent Care Expenses.
Eligible child-care expenses include the cost of day care, a nanny or a babysitter while you work, as well as preschool (but not the cost of school for children in kindergarten or higher grades). You can also count the cost of before-school or after-school care and day camp during the summer and school breaks if using them allows you to work.
For more information about the eligible expenses and calculations, see IRS Publication 503, Child and Dependent Care Expenses. See The Best Way to Get a Tax Break for Child Care Costs for more information about the advantages of the dependent-care FSA versus the child-care credit (you’ll generally come out ahead if you max out the dependent-care FSA first, especially if you have a high income ).
As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.
-
Six Ways Women Can Overcome Any Financial Obstacles Holding Them Back
To improve your financial situation, focus on empowering yourself first.
By Kiplinger Advisor Collective Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Six Tax Breaks That Get Better With Age
Tax Breaks Depending on your age, several tax credits, deductions, and amounts change — sometimes for the better.
By Kelley R. Taylor Last updated
-
Biden Proposes New Homebuyer Tax Credits
Tax Credits President Biden is calling for new middle-class tax breaks including a mortgage tax credit.
By Kelley R. Taylor Last updated
-
Will Florida Property Tax Be Eliminated?
Property Taxes A new proposal is raising questions about revenue generation in the Sunshine State.
By Kelley R. Taylor Published
-
States That Won't Tax Your EV
State Tax Most states impose additional fees on electric vehicles, but these states don’t penalize EV owners, and some also offer other tax incentives.
By Kelley R. Taylor Last updated
-
Tax Season is Here: Big IRS Tax Changes to Know Before You File
Tax Filing Tax deductions, tax credit amounts, and some tax laws have changed for the 2024 tax filing season.
By Kelley R. Taylor Last updated
-
Your Arizona Family Rebate is Taxable: What to Know
State Tax Thousands of Arizona families will need to report income from special child tax relief payments.
By Kelley R. Taylor Last updated
-
Families and Businesses Would Get Big Tax Breaks in Bipartisan Tax Deal
Tax Changes A new bipartisan tax deal could change the child tax credit, R&D expensing, and the employee retention tax credit.
By Kelley R. Taylor Last updated
-
Non-Refundable vs Refundable Tax Credits: What’s the Difference?
Tax Credits Refundable tax credits and non-refundable tax credits can be confusing. Here’s how they work and how each can help you when you file your tax return.
By Katelyn Washington Published