Just Had Your First Child? 3 Things You Need To Know About The Child Care Credit
If you just had your first child, there are a variety of different things you are going to need learn concerning tax law as a caregiver. One of the things that you are going to need to learn about is the child care credit. Here are three things that you need to know and understand about the child care tax credit.
#1 Qualifying Individual
As a new parent, you don't have to worry about this too much, but it is important that you understand the ins and outs of who qualifies as a dependent of the child care credit. The child care credit is different than other tax credits that you can get for taking care of a dependent. The child care credit only applies to your child up until their thirteen birthday; apparently, after your child turns thirteen, the government no longer thinks that you should have child care expenses associated with your child and will not help you offset those expenses via a tax credit.
Additionally, for tax purposes, you are going to have to provide the name of your baby as well as their social security number, so make sure that you have access to your baby's social security number.
#2 Qualifying Childcare
Only specific instances of childcare qualify for the child care credit. The child care credit is only designed to offset the hours that you pay for child care so that you and your spouse can work. Any child care costs that you inquire so you can enjoy a date with your spouse, or just get some things done without having your child around while you are not working, don't count towards the calculation of child care costs for the child care tax credit.
It is important that you keep detailed records of what you spend on childcare and also keep records of when you work, to prove that your childcare expenses were related to you and your spouse's work and commuting hours. You need to make sure that you keep your W2 or income records if self-employed to back up the correlation between work hours and childcare should you ever be audited.
#3 Credit Limits
Finally, it is important to realize that there are limits to how much you can claim in child care expenses. Most vitally, you cannot claim your child care expenses exceeded your income. If you have a spouse and are married, that is one reason why you might want to consider filing your taxes jointly; when you file jointly, your childcare expenses can't exceed your joint income.
If you file separately, each of your child care expenses cannot exceed your individual incomes. For example, if you work part-time and bring in $15,000 per year and your spouse brings in $60,000 per year and your childcare expenses are $20,000 per year, you could not claim the whole $20,000 in childcare expenses against your taxes, you would need to divide up your childcare expenses and tax credit claim between your two tax returns.
If you have further questions about how the child care tax credit works, be sure to talk to your account about how exactly this program works, how it can benefit you this tax season and what information you need to gather for this tax credit.