How to Pay a Relative for Childcare

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.

Tips

  • If you are married, you must file your taxes jointly with your spouse to claim the tax credit. You cannot file your taxes using the "married filing separately" tax status. Your child must be under 13 when you incurred your childcare expenses.

Warnings

  • Qualified childcare expenses for tax purposes include fees paid to relatives. However, you cannot pay your spouse to watch your child to qualify for the tax credit. Furthermore, if you are divorced or separated, you cannot pay your child's other parent to watch your child to qualify for the tax credit. Additionally, the IRS does not allow you to pay another one of your children who is under age 19 and qualify for the tax credit. You may, however, pay your child who is 19 or older to watch your child.

References

About the Author

Jill Stimson has worked in various property management positions in Maryland and Delaware. Stimson worked for the top three property management companies in the commercial industry and focuses her career on property building logistics and tenant relationships. She holds a Juris Doctor and a Bachelor of Science in psychology.