The Internal Revenue Service allows taxpayers to claim a childcare tax credit if they incur qualified expenses for work-related childcare. The Child and Dependent Care Tax Credit allows taxpayers to reduce their taxable income by up to $3,000 per child, limited to $6,000 annually. A taxpayer can receive a tax credit equivalent to 35 percent of her qualified childcare expenses, depending on her annually adjusted gross income. To claim the tax credit, taxpayers must pay qualified care providers. A qualified care provider can be a relative. However, a qualified care provider cannot be your spouse or the child's other parent.
Pay your provider for work-related childcare or school-related childcare expenses. You may pay your relative by cash, check or credit card as long as you obtain receipts for payment.
Ask your care provider for a receipt substantiating your payment. You may also use bank account statements or credit card receipts as verification of payments.
Add up the total amount you incurred during the tax year for qualified childcare expenses. You must have incurred the childcare expenses so that you and your spouse, if married, could work. If you don't work, you must be enrolled in school to qualify.
Identify your childcare provider on Form W-10, Dependent Care Provider's Identification and Certification. If your state requires licensing for childcare providers, your relative must be properly licensed pursuant to your state's licensing laws. You must provide your relative's name and taxpayer identification number.
Complete IRS Form 2441, Child and Dependent Care Expenses to receive your tax credit. You may also glean valuable information from the accompanying instructions. Transfer the amount of your credit to your tax returns.
