If child care bills eat up a huge chunk of your budget, the good news is that you may be entitled to a bit of tax relief.
The Child and Dependent Care Credit can reduce your tax burden if you pay for care so you can work. Like all tax credits, this credit is a dollar-for-dollar reduction of your tax liability. If you owe the IRS $1,000 but score a $600 credit, your tax bill shrinks to $400.
The good news about the Child and Dependent Care Credit is that there are no income thresholds associated with it – meaning you can qualify even if you're not a low earner. That said, your income will dictate how much the credit is worth. You're allowed to claim the cost of child care for any child in your household under the age of 12. You must claim that child as a dependent on your tax return. From there, you can deduct a percentage of up to $3,000 in child care costs for a single child, or a percentage of up to $6,000 in child care costs for two children or more.
That percentage will depend on your income. If it's below $15,000, you'll get back 35% of your child care costs, up to the aforementioned thresholds. From there, that percentage drops by 1% for every additional $2,000 of earnings, and once your income reaches $43,000 or more, you're limited to 20% of up to $3,000 or $6,000 in child care costs.
That may seem confusing, so here's an example that will help clarify how the credit works. Imagine you have two children whose child care costs you $5,000 each, and you earn $80,000 a year. You can claim 20% of $6,000 , or $1,200.Child care is no doubt a huge burden, so it pays to get a little tax relief to ease the pain.
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