Understanding the Tax Credit for Care of Children and Dependents

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The IRS urges individuals not to overlook the Child and Dependent Tax Credit. Eligible taxpayers can claim it if they paid someone to care for a child, dependent or spouse last year.

Taxpayers can use the IRS Interactive Tax Assistant tool,   do I qualify for the Child and Dependent Tax Credit? To help determine whether they are eligible to claim credit for expenses paid for the care of an individual to enable the taxpayer to work or seek work.

Another eight key points about this credit include:

Work-related expenses. Care must have been necessary for a person to be able to work or look for work. For people who are married, care must also have been necessary for a spouse to work or seek work. This rule does not apply if the spouse was disabled or was a full-time student.

Qualified person.

Care must have been for “qualified persons.” A qualified person may be a child under 13 years of age. A qualified person

may also be a spouse or dependent who lived with the taxpayer for more than half the year and is physically or mentally unable to take care of himself or herself.

Work income.

tax filing online

A taxpayer has to have work income in the year, such as the wages of a job. For married persons who present together, the spouse must also have income from work. Special rules apply to spouses who are students or disabled.

Percentage of credit / Expenditure limit.

The credit is worth between 20 and 35 percent of the allowable expenses. The percentage depends on the amount of the income. Permitted expenses are limited to $ 3,000 for the care paid by a qualified person. The limit is $ 6,000 if the taxpayer paid for the care of two or more.

Benefit for dependent care.

Special rules apply to people who receive dependency benefits from their employers. The Form 2441 , Expenses for care of children and dependents (in English) has more information about these rules. File the form with a tax return.

Social security number of the qualified person.

You must include the social security number of each qualified person to claim the credit.

Information from the care provider.

You must include the name, address and taxpayer identification number of the care provider on the tax return.

Taxpayers who pay someone to come to their home to care for their dependent or spouse may be employers of domestic employees and may have to withhold taxes and pay Social Security and Medicare taxes, and the federal tax on unemployment. See Publication 926, Tax Guide for Employers of Domestic Employees.

 

All taxpayers must keep a copy of their tax return. Beginning in 2018, taxpayers using a software program for the first time may need the amount of their Adjusted Gross Income (AGI) from their previous year’s tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns, in

Verify your tax return after filing electronically.

What is the additional Medicare tax?

Some taxpayers may be required to pay an additional tax to Medicare if their income exceeds a certain limit. The Internal Revenue Service (IRS) wants people to know more about this tax.

Tax rate. The additional Medicare tax rate is 0.9 percent. 

Income subject to tax. The tax applies to the number of wages, self-employment income and rail withdrawal compensation (RRTA) that is more than the limit amount. For more information, see Medicare Extra Tax Questions and Answers.

Limit amount. Tax status determines the limit amount. For those who are married and filing jointly, they must combine their wages, compensation or self-employment income with those of the spouse. The total combined income determines if it exceeds the limit amount for this tax. Limit amounts are:

Tax status Limit amount
Married together $ 250,000
Separately Married $ 125,000
Single $ 200,000
Family boss $ 200,000
Widowed with a dependent child $ 200,000

 

Withholding / estimated tax.

Employers must withhold this wage or compensation tax when they pay employees more than $ 200,000 in a calendar year. Taxpayers working on their own must include it for purposes of estimated tax liability.

Insufficient tax payment.

People who had very little tax withheld or did not pay enough estimated tax can owe an estimated tax fine. The Publication 505, Tax Withholding and estimated tax (in English), provides rules and details about estimated taxes.

Individuals who owe this tax must file Form 8959 with the tax return. Individuals must also report any additional tax to Medicare withheld by their employer or employers on Form 8959. IRS.gov/espanol offers more information about this topic. Forms and publications are available at IRS.gov/forms at any time.

All taxpayers must keep a copy of their tax return. Beginning in 2018, taxpayers using a software program for the first time may need the amount of their Adjusted Gross Income (AGI) from their previous year’s tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns, in Verify your tax return after filing electronically.

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