Saturday, 14 April 2012

Guest Post - Child and Dependent Care Expenses: Not Just For Kids Only

By Cora Parks

By now, everyone with a child under age 13 is familiar with Child and Dependent Expenses, a credit that will allow you to deduct up to 35% of the expenses that you pay on behalf of a qualifying person to allow you to work.  But I bet that you didn’t know that children are not the only ones that qualify.  Here are other lesser  known qualifying individuals that will also qualify you for this credit:

        Your spouse who is unable is unable to care for himself or herself mentally or physically (cannot dress, feed, or clean themselves or who may otherwise injure themselves or others) that has resided with you for more than half the year.

        An individual of any age:
o    That is unable to care for himself or herself mentally or physically (cannot dress, feed, or clean themselves or who may otherwise injure themselves or others)
o   Lived with you for more than 6 months.
o   That qualifies as your dependent 

o   That could have qualified as your dependent except for the following:
  Their income exceeded $3,700
  They filed a joint return

o   The qualifying individuals can be the following:
  Your older child
  Qualifying relative (niece, nephew, sister, brother, uncle, aunt, mother, father, grandmother, grandfather)

Now to address the qualifications to claim the credit:
1.     You must either have income from work or are a full time student for at least five months out of the calendar year.
2.     The expenses must be incurred to allow you to work.
3.     Other than for nursery, daycare, after school care, or babysitters, you may deduct payments made to the following that provided qualifying care:
a.     Your older child over age 18 that you cannot claim as a dependent.
b.     Other individuals that are related to you that you cannot claim as a dependent. 
c.      A dependent care center that is compliant with all state and local regulations.
d.     A household employee, such as a housekeeper, maid, or cook, whose services are in part related to the well being and protection of the qualifying person.  The expenses for these services must be separated from the expenses incurred for the upkeep of your home. 
4.      Your filing status must be one of the following:
a.     Single
b.     Head of Household
c.      Married Filing Jointly
d.     Married Filing Separately under the following stipulations:
i.      Legally separated from your spouse under a divorce decree or separate maintenance decree. 
 ii.      Living apart from your spouse and all the following are true:
1.     The qualifying person lived with you for more than half the year.
2.     You paid more than half the cost of keeping up your home for the year.
3.     Your spouse did not live in your home for the last 6 months of the year. 

Every care provider, whether an individual or organization, must provide the social security number or employer identification number, name, and address on the Form 2441.  If the organization qualifies as a not for profit organization, you may enter “tax exempt” in the space provided for the employer identification number. 

Even if the care provider refuses to give you their social security number or employer identification number or are given an incorrect number, you will still be able to take the credit under the following conditions:
1.     File a paper return.   Without a number, you will not be able to file electronically.
2.     Show due diligence.  In other words, although you came up empty with the number, you tried to the best of your ability to obtain the information.   When you file your return, you will need to provide the information that you were able to secure, such as name and address on the Child and Dependent Care Expense Form 2441.  On the line for “Employer Identification Number/Employer Identification Number” write “see attached statement”.  The statement should include the following information:
a. Your name
b. Your social security number
c. You requested the information from the care provider but the provider refused to give the information.   You may also provide dates, times, who you talk to, and what happened on each occasion that you requested the number to show that you were persistent in trying to obtain the information.  If you attempted to perform research on the information, for example, you attempted to Google the information and was unsuccessful in finding it, you may also include these efforts as well. 
In short, not only your kids but others in your family that require outside care that would allow you to continue your education or being their provider benefit from the Child and Dependent Care Expense.  In shedding new light on this old credit, it becomes more than a tax credit; it becomes peace of mind and may be an additional way to reduce your tax time burden.   

For more information on the full scope of this credit, you may consult the following IRS resources, available at or by calling 1-800-829-3676 to order by telephone.  

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How To Pay the IRS When You're Broke gives you various options to make payments to the IRS and the costs associated with them. Remember, if you do nothing, things will only get worse.

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