(UPDATE: The giveaway is now closed. We have our winners! See the comments for more info.)
Last night, I had the challenge of being three places at one time. I had to figure out how to get my son to soccer practice, myself to Back To School night for my daughter’s middle school, and be home to do homework and watch the kids. It was nearly impossible.
Childcare is a challenge for a lot of parents across the country – and never more so when it comes to watching kids while parents work. It’s a hot topic these days and it can be somewhat controversial. Fortunately, the tax treatment of childcare expenses is a lot easier to navigate.
The Tax Code allows parents who pay for child and dependent care expenses to claim a credit so long as they meet certain tests:
- The care must be for one or more qualifying persons. A qualifying person is further defined under the Regulations but for purposes of childcare, your qualifying child is your dependent who is under age 13 when the care is provided (see IRS Pub 503 for more on care for other dependents, including those who are disabled and special rules for divorced parents). To be your dependent, a person must be your qualifying child (generally, a child who lives with you for more than half the year) or your qualifying relative.
- You must be able to provide the name and Social Security Number (SSN) of the qualifying person or persons. If the qualifying person does not have a SSN, use that person’s Individual Taxpayer Identification Number (ITIN) or Adoption taxpayer identification number (ATIN).
- You (and your spouse if filing jointly) must have earned income during the year. If you don’t have earned income because you don’t work (see #4 below) or because you claim zero or a loss from self-employment, you can’t claim the credit. In addition to self-employment income, earned income generally includes wages, salaries, tips and other taxable employee compensation. It does not include pensions and annuities, Social Security, workers’ compensation, unemployment compensation or other income not related to work. Child support payments are never considered childcare and do not qualify for the credit.
- You must make payments for childcare expenses so that you (and your spouse if filing jointly) can work or look for work (exceptions apply for students and the disabled). If you are married and one of you does not work and is not looking for work, you can’t claim the credit. Additionally, if you do not find a job and have no earned income for the year (see #3 above), you cannot take this credit.
- You do not have to choose the least expensive childcare available. The cost of childcare may be an expense for purposes of the credit even if another care provider is available at no cost – so if your grandmother would watch the kids but you choose to hire a babysitter, you can still use the cost of the sitter to calculate the credit. Additionally, expenses you pay for daycare, nursery school, preschool, or other programs for children below the level of kindergarten qualify for the credit, as do before or after school programs for children under the age of 13. Childcare can be provided in your home or at a school or center.
- You must make payments for childcare expenses to someone you (and your spouse) cannot claim as a dependent. If your childcare provider is your child, he or she cannot be your dependent and must be age 19 or older by the end of the year. You cannot make payments to your spouse, or the parent of your qualifying person if your qualifying person is your child and under age 13.
- Your filing status cannot be married filing separately.
- You must identify the care provider on your tax return, together with a tax ID number.
To figure the credit, you’ll multiply your work-related expenses by a percentage based on your adjusted gross income (AGI).
The percentage starts at 35% at the lower end of the income spectrum and is reduced to 20% (you can find the exact figures on form 2441, which downloads as a pdf). After you calculate the credit, the amount is further limited by the amount of your tax: the childcare credit is not refundable.
If you receive benefits under a dependent care benefit plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for).
Credits, of course, are desirable because they are a dollar for dollar reduction in the amount of tax payable. Deductions, in contrast, only reduce your taxable income. That makes the childcare credit one worth figuring.
And that brings us to the next giveaway. Five readers will each receive a $100 gift card to UrbanSitter. UrbanSitter is an online and mobile service that connects parents and babysitters via their social connections.
Founded by three moms who wanted to use technology to power a faster, more personal babysitting service, UrbanSitter is the newcomer in the space, but is out-innovating the incumbents and growing quickly. UrbanSitter leverages members’ social graphs to surface babysitters to whom they have a real-world connection through people they trust, and then offers profile info and a video clip coupled with valuable marketplace data about each sitter’s performance (reviews from parents who’ve booked her/him, number of repeat families, how quickly they respond to booking requests, special skills, etc.).
UrbanSitter also facilitates the booking in real-time (a la OpenTable) and the payment (a la Über).
To enter to win, just post a comment below telling me what you would do or where you would go if you had a night out without kids. I’ll go first: A grown up movie. You know, without animated characters or dogs that talk.
Entries must be posted in the comments section for this blog post in the space below by 10:00 p.m. EST on September 21, 2014. It’s just that easy. I’ll choose five winners randomly (using a number generator) out of all of the qualifying entries.
Be sure and read the fine print for more rules because, as you know, I’m a lawyer and I like rules:
-
Don’t panic if your comment doesn’t show immediately. If it goes to moderation because, for example, you’re new here, the time stamp on your comment is what counts.
-
I love my Twitter followers and my Facebook fans but for this particular giveaway, tweets and Facebook comments will not be counted. Ditto for emails. You must leave your comment on the blog at this post.
-
You can enter as many times as you like but you must leave a different answer each time you comment.
-
Offensive comments or comments that otherwise violate the comment policy will be deleted and will not be considered valid for purposes of the contest.
-
Similarly, pingbacks and other links will be disregarded for purposes of the contest.
-
I will need your full name and your email address: be sure to use your real information when you register to leave a comment. I won’t publish your email address but I do need contact information for the winning entry. If you win and I can’t reach you, it’s a forfeit.
-
Due to shipping considerations, you must have a valid United States address. Sorry, Canada, eh?
-
I respect your privacy and I will not send you anything unrelated to your entry in this contest. By entering the contest, you agree that I may post any part or all of your submission including your name as a part of the contest announcements or promotions, with the exception of your email address.
-
Like Judge Judy, my determination is final.
-
Prizes are provided directly by our sponsors and are not exchangeable or redeemable for other prizes. Sponsors do not pay for placement and do not receive any compensation for contributions – neither do I! I have no affiliation, paid or otherwise, with any of our sponsors.
-
If you aren’t allowed to participate in giveaways because of the laws in your state or your age or an agreement you’ve made with your mother, consider this giveaway not applicable to you. In other words: void where prohibited or restricted.
Comment away! And thanks for participating in Back To School 2014!
