Eligible parents can receive child and dependent care tax credits - not deductions, as is sometimes believed - if they meet a certain set of criteria. Unmarried people cannot, however, split the deduction between them; a dependent can only be claimed by one parent, typically the custodial parent, or the parent the child lives with for the majority of the year. Even though both parents can't split the credit, one parent can give up the right to claim the credit and allow the other parent to use it by filing IRS Form 8332, Release/Revocation of Release of Claim for Child by Custodial Parent.
Childcare Tax Credits
There are myriad rules about who can claim tax credits and for what purposes. Generally speaking, if you are the custodial parent, you have a dependent under the age of 13, you are paying for care provided by a non-parent or dependent and you are using the care to afford yourself of the opportunity to work or look for work, you can claim the credit. You cannot claim the credit if your childcare provider is your child's parent or a dependent sibling under 19, and you cannot claim the credit for non work-related care – for example, for hiring a babysitter so you can go to the gym or out to a movie.
To claim the credit, you can file Form 1040, Form 1040A or Form 1040NR.
Earned Income Qualifier
In order to claim the child and dependent care tax credit, you must have earned income during the year, and your filing status must typically be single or head of household. Earned income is money received as compensation from a job, self-employment or military combat pay. Payments from Medicaid, unemployment, Social Security or scholarships are not considered earned income. Child support is also not considered earned income, nor is any money earned while incarcerated and being paid a prison wage.
In order to qualify for the child and dependent care tax credit, you must provide the name, address and taxpayer identification number of the individual providing care, or the employer identification number for the organization providing childcare. If you receive supplemental, non-taxable financial childcare assistance from a social services agency to subsidize your childcare expenses, you must factor that amount into your deduction. According to the IRS, for the tax year 2017, the amount of qualifying work-related expenses that can be used to assess the credit is $3,000 for one qualifying person, or $6,000 for two or more qualifying people.
To calculate the amount of your credit, multiply your work-related expenses by a percentage of your adjusted gross income outlined on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37.