4 Things Everyone Should Know About the Child and Dependent Care Credit

If you're like most people, you pay a caregiver to look after your children or another dependent while you're at work — this can include anyone from a personal at-home nanny to instructors working for an afterschool program.

If you paid for care for a loved one last year, the good news is you might be able to claim the Child and Dependent Care Credit on your tax return! Ultimately, this will significantly reduce the cost of paying for care, putting more money in your pocket when you file.

Here some important things to know about this credit:

The care must have been provided for one or more "qualifying persons."

A qualifying person can be your child (12 years old or younger), a spouse or an individual under your care that's physically or mentally incapable of caring for themselves. In order to claim this credit, you must list the name, address and social security number of the provider on your return.

The care you paid for must have been necessary so you could work.

If you're married or filing jointly, this also applies to your spouse. If you were unemployed at some point last year, you can also claim money spent on care while you were out job hunting. Keep in mind, the payments for care can't be paid to your spouse, to the parent of your qualifying person, to someone you can claim as your dependent or to your own child under the age of 19 — even if the child isn't claimed as your dependent.

The credit is worth up to 35% of the qualifying cost for care.

Of course, this depends on your income. There's a $3,000 limit of your total cost for care for one qualifying person. If you pay for care for more than two people, you may be able to claim up to $6,000 of your total costs. In order to qualify, you must have earned some sort of income. For example, wages from a job.

If you pay someone to come to your home for care, you might be a household employer.

When you become a household employer, it's important to know what different rules apply: you might be required to withhold and pay social security, Medicare and federal unemployment tax. For more information on whether or not you qualify as a household employer, see Publication 926, Household Employers Tax Guide.

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