The Child and Dependent Care Credit: How to Calculate

Resources

• 2014 Form 2441, Child and Dependent Care Expenses
• Instructions, 2014 Form 2441
• IRS Publication 503: Child and Dependent Care Expenses

Why YOU Should Care

You may be able to claim a credit on your annual tax return for the amount you pay someone to provide care for your child or dependent while you are working, looking for work, or attending school full-time.

Calculating Total Applicable Expenses

For purposes of the credit, add up the amounts paid by December 31 of the relevant year. If expenses are prepaid, they can only be counted in the year care is provided. If expenses are billed after care is provided, count them in the year they are paid. Do not include any amounts reimbursed through a social services agency.

Calculating the Credit

• Earned Income Limit
  • Your credit for dependent care expenses cannot exceed the lesser of you or your spouse’s earned income for the year.
    • This is calculated without regard to community property laws in place in certain states.
  • If either spouse is self-employed, earned income is the net earnings from self-employment less any deduction for self-employment taxes.
  • If you or your spouse are either a full-time student or unable to care for yourself, you are considered to earn $250 a month if there is one qualifying person in your home or $500 if there are two or more.

• Dollar Limit
  • The credit is limited each year to $3,000 for one qualifying person or $6,000 for two or more.
    • These limits apply on a family basis. If one child has more than $3,000 of expenses and another has less, the dollar limit is still $6,000 for the family.
  • This credit limit is reduced if you received dependent care benefits at work that were deducted from your wages on your Form W-2.

• Amount of Credit
  • To calculate the credit allowed each year, the applicable dollar limit determined above is multiplied by a percentage listed on step 8 of the Form 2441.
  • This percentage varies based on your adjusted gross income.

How to Claim

The credit is calculated on Form 2441 and reported on your Form 1040, 1040A, or 1040NR. If you wish to claim this credit, you cannot file a Form 1040EZ.

This credit is limited to the amount of your tax and is not refundable.