You may qualify for dependent care credit, but you need to have all the info.

When you brought that little tax credit…er…I mean bundle of joy…home from the hospital, you knew your life was going to change. You now have this tiny, helpless creature that must be supervised and cared for. All. The. Time. At some point in time, it is very likely that you will need to pay someone to care for your offspring while you venture forth to make money in order to house, feed, and clothe this brand new human. If you do so, you may be eligible for something called the Dependent Care Credit¹.

What expenses can I claim for this credit? Subject to a few limitations, it is generally any unreimbursed² payments you make for child care of a dependent under age 13 while you are working³. This can be self-employed work or W-2 employment. Here are a few examples of unreimbursed child care payments that would qualify:

• Daycare/childcare centers
• Pre-Kindergarten preschool or nursery school
• Nanny (household employee)⁴
• Day camp
• Some after-school activities
• Babysitters

There are a couple providers that specifically do not qualify:

• Overnight camp
• Tutoring or other private lessons
• Transportation to or from care provider (unless transportation is provided by that care provider)
• Child’s parent or minor sibling⁵

Great – I paid a ton of money for that. What do I do to get this credit? In order to claim the credit, you need to give your tax preparer the following info on each care provider:

• Name of provider
• Provider tax identification number (EIN or SSN)
• Provider address
• Care location (if different)
• Provider phone number
• Amount paid during the tax year, allocated to each dependent

You noticed the second item – tax ID number. This information is usually listed on the year-end statement provided by most daycare centers, day camps, or other care providers. If you employ a nanny, you should have this from the Form W-4 you collected when you hired them (because you are sending them a W-2, right? <nod with me>). However, if, for example, you paid a neighborhood kid or two to watch your children while you worked, you will need to get a Form W-10 to request the social security number of those providers. If you think you will need a Form W-10, request it as soon as possible.⁶

I can work with that. How much credit do I get for this? It’s actually a bit disappointing. The credit is figured on a sliding scale based on your modified adjusted gross income. Without getting into a whole bunch of math, I find most people max out this credit at $600 for one qualifying dependent and $1,200 for two or more.⁷ But, hey, better than nothing. And you never know what those crazy folks in Congress are going to do with the tax code.

So, as you gather up your tax data, be sure to collect those dependent care expenses and all the info that goes with them!

1. This credit is in addition to the general child tax credit you may be eligible for. ↩︎
2. Childcare expenses that are reimbursed through an employer’s flexible spending arrangement (“FSA”) are not eligible for this credit. But if you have dependent care expenses in excess of the FSA reimbursement, they can be used to claim this credit. Additionally, your tax preparer needs to report at least the amount of dependent care expenses as you claimed during the tax year. So you still need to give them all this information. ↩︎
3. This credit is also available for other dependents like disabled parents or disabled older children. However, I am limiting this post to dependent care credit for children under age 13. ↩︎
4. If you hire a nanny or a related party for child care, there are some additional requirements in order to render these payments eligible for the credit. ↩︎
5. Seriously, people have tried to pay the other parent to “babysit” their own child. You cannot babysit your own child. It’s called parenting. /rant ↩︎
6. In the future, it is better to get the Form W-10 from the provider before care commences or payment is made. Also, this does not mean you will be required to issue any sort of Form 1099 to the provider(s). ↩︎
7. This is calculated based on the tax law in effect at the time of this writing. There is legislation pending in Congress that could alter this and other child-related tax credits. Please consult your tax advisor for the most recent developments. ↩︎