Until recently, a lesser-known tax credit to many Americans was the Child and Dependent Care Credit. This federal tax incentive is often confused with the $1,000 Child Tax Credit, but they are completely different.
Federal Government Taxes – 2009 IRS Child Care Tax Credit Rules
The Child Tax Credit is meant to be taken by any taxpayer under certain income thresholds who has qualifying dependents; the Child Care Credit can only be taken by those who incur qualifying dependent care expenses.
In this article, learn several rules about the 2009 child care tax credit and where to access further details about this United States federal government tax break for people with qualifying dependent care costs.
U.S. Federal Tax Credit for Dependents’ Care – Who Qualifies?
Below are several qualifications that apply to the 2009 child care tax credit. Note that it is possible for the rules to remain very similar from year to year, but all taxpayers should review applicable tax return instructions each year for changes to tax law.
- Available only to those with earned income in 2009.
- Child care costs must be paid to a non-dependent. (For instance, parents can’t take the credit for paying their 15-year-old to watch their 8-year-old).
- Dependent care expenses must be incurred for the dependent’s well-being and safety.
- Dependents must be less than 13 years old (exception: spouse or other dependent who cannot care for himself or herself physically or mentally).
- Child care expenses must be incurred while the guardian or parent is working or job hunting.
- The child care provider must be named.
Who Doesn’t Qualify for 2009 Child Care Tax Credit? See IRS Rules
The IRS notes several reasons why a taxpayer can’t claim the child care tax credit in 2009. These include:
- Taxpayer did not file Form 1040, Form 1040A, or Form 1040NR. This credit can only be claimed on one of these federal income tax forms.
- Taxpayer used married filing separately status. The only allowable filing statuses are single, head of household, qualifying widow(er), or married filing jointly.
- Taxpayer does not know the dependent’s Social Security Number or ITIN.
Dependent Care Credit Rules in Publication 17, Form 2441 Instructions
The rules above are meant to be a starting point for tax credit research. The child care credit rules are so numerous that it would be impossible to list them all in this article. Further information about this federal income tax credit can be found in Publication 17 (2009 version), Chapter 32. See also Form 2441 instructions.
Obama's 2010 Changes to 2011 Child Care Tax Credit
Taxpayers should keep in mind that in the presidential State of the Union Address in January 2010, Barack Obama outlined a plan for increasing child care tax credit benefits in the future. If any such changes to tax law are passed in 2010, it is highly likely that the increased benefits will take effect in the 2011 tax year.
For 2009, the child care tax credit is non-refundable, which means it can only reduce tax to zero. If Obama’s suggested changes go through, this may change in the future.
Child Care Credit – How Much Is It? Does Eligibility Phase Out?
For the 2009 tax year, the credit ranges between 20% to 35% of qualifying expenses, depending on the taxpayer’s adjusted gross income. The 35% credit is available to taxpayers with adjusted gross incomes of $15,000 or less.
As the taxpayer’s income increases, the credit percentage decreases; for every $2,000 of additional adjusted gross income above $15,000, the credit percentages decreases by 1%. Anyone who reports $43,000 or more in adjusted gross income may receive a maximum 20% credit for child care costs.
Claiming Child & Dependent Care Credits – Federal Forms to Use
Unlike the Child Tax Credit, there is no separate Child Care Tax Credit Worksheet to complete to determine eligibility. To figure out the exact amount available, a taxpayer should complete Form 2441. Form 2441 should be attached to the taxpayer’s individual income tax return, and the credit amount should be entered on Form 1040 (line 48), Form 1040A (line 29), or Form 1040NR (line 45).
Anyone who is eligible for a child care tax credit may also be eligible for the child tax credit. Read more about this additional United States government tax break at the link above and other 2009 federal government tax incentives in the following articles:
$6,500 Tax Credit for Home Buyers
New Car Tax Rebate – Obama Economic Stimulus Plan
Resources:
IRS Form 2441
2009 Publication 17, Chapter 32. Retrieved from irs.gov on January 28, 2010.
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Lena Gott - Lena Gott is a Certified Public Accountant who gives practical financial advice to her readers.
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