The 2023 Child and Dependent Care Tax Credit are often confused with its more well-known cousin, the Child Tax Credit. Since the child and dependent care tax break is different because it is meant to help people who work or are looking for work pay for care costs.
If you paid for daycare, preschool, or another form of childcare, there is a tax break you may want to know. Here’s how the credit works, who can get it, and how to ask for it.
This tax season, a frequently disregarded tax benefit could give families up to $8,000 back in their bank accounts. (Photo: https://www.forbes.com/)
How much is the 2023 Child And Dependent Care Credit worth?
The credit is worth 20% to 35% of up to $3,000 (for one qualifying dependent) or $6,000 (for all eligible dependents). (for two or more qualifying dependents). This means that the highest child and dependent care credit for the 2022 tax year is $1,050 for a single dependent and $2,100 for two or more dependents.
How much credit you can get depends on how much of your qualifying costs you can deduct from your adjusted gross income.
Here is how it breaks down by amount and level of income. There is no limit on how much money you can make and still get the CDCC. If you make more than $43,000, you may still be able to claim up to 20% of your costs.
Who can receive 2023 child and dependent care credit?
In general, for the credit to apply, the person for whom you’re paying care costs must be a dependent on your taxes and either:
- A child younger than 13 years old.
- A person who has lived with you for more than half the year and can’t take care of themselves because they are too sick or too old.
- A person who has stayed with you for more than half the year and can’t take care of themselves. They are eligible for dependent status on your tax return.
You might also be able to claim someone who meets all the other standards, but you couldn’t claim them as a dependent because:
- They made at least $4,400 in gross money.
- They made joint return.
- You or your partner (if you file jointly) as a dependent on someone else’s return.
Children who turn 13 during the tax year, babies, and people who are split or divorced have to follow different rules. For more knowledge, you can check at IRS Publication 503.
What kinds of care costs count toward the 2023 child and dependent care credit credit?
Before you can get the 2023 child and dependent care credit, you have to make sure that the care costs you paid for during the year meet or are okay with the IRS.
What qualifies:
- Nursery school
- Children who aren’t yet in kindergarten can go to preschool or a program like it.
- Pre- and after-school care.
- A person who looks after your loved one outside of your home (e.g., a neighbor).
- Transportation that a care worker takes with a person you care for who meets the qualifications (e.g., bus, subway, taxi).
- Dependent care center.
- Day camp.
- Payments made to care providers or care services, such as fees, deposits, and application fees.
What doesn’t count:
- Payment for child support.
- Expenses to attend kindergarten and above schools.
- Summer classes.
- Tutoring.
- Sleepaway camp.
Food, a place to stay, clothes, schooling, or fun (unless these costs are small, incidental and part of a care service program).
Also, if your company helps pay for your care costs, if you have a flexible spending account for care for your dependents, or if you use a care facility that your employer pays for, you may need to take that amount out of your total qualifying expenses. See IRS Publication 503 for a full list of costs that count and the rules and restrictions that apply.
Who is qualified as care provider?
To get the 2023 child and dependent care credit, the IRS is very specific about what a “care provider” is. Not just anyone fits. For instance, you can’t pay family members, like your partner, to take care of your dependent. There are also more rules for people who are thought to work in a household.
Other people who might not be allowed to provide paid care are:
- The child’s or dependent’s parent.
- You or your partner can also claim this person on your tax return.
- Your child who is under 19 years old.
When you claim the credit, the IRS will also ask for the care provider’s name, address, and taxpayer identification number. If you hire a person as a care provider, their TIN is their Social Security number. If you hire a company, their TIN is their EIN.
The 2023 child and dependent care credit additional criteria
The full story is in IRS Publication 503, but here are some other important points to remember:
- Usually, if you are married and want to claim the 2023 child and dependent care credit, you must file your taxes as a married couple. But if the couple is officially separated, not living together, or divorced, the parent who has primary custody can claim the credit. Also, if there is shared custody and the eligible dependent spends the same number of nights with each parent, the parent with the higher income can claim the 2023 child and dependent care credit.
- To qualify, you must have made money at some point during the year. Money from pensions, working abroad, Social Security, workers’ compensation, unemployment, interest or returns from investments, or child support does not count. There are more information in Publication 503.
- If you file your taxes as a married couple and your spouse is a full-time student for at least five months of the year, they will be considered to have made income during that time. Volunteer work does not count.
- If you only worked part-time or for part of the year, there are different rules for how the credit is calculated.
How to get the 2023 child and dependent care credit?
The 2023 child and dependent care credit can be claimed on tax returns for 2022 that are made in 2023. You’ll need to attach Form 2441 and Schedule 3 to the regular 1040.
On IRS Form 2441, there is a form that can help you figure out the exact amount of credit you can get. The answer will then be written on line 2 of Schedule 3. If this seems like a lot of papers to keep track of, don’t worry. The good news is that most tax software can easily figure out the credit and file it for you.
When you file for the credit, you must include the Social Security number, taxpayer identification number, or adoption identification number of each approved dependent.
Bottom line: Is it worth it to claim the 2023 child and dependent care credit?
It depends on what’s going on. Since you can’t get your money back for the 2023 child and dependent care credit, it can make a difference if you expect to have to pay taxes. But if you expect a return, the credit won’t help you at all.
You might want to think about other choices besides the 2023 child and dependent care credit. For example, employer-sponsored flexible spending accounts for care of dependents let you put money from your salary that has already been taxed into an account to pay for approved care costs. You can put in up to $5,000 for the 2023 child and dependent care credit year.
Since the contributions are tax-advantaged, the amount you put in will lower your taxable income by the same amount. This can save you more tax money than just getting the 2023 child and dependent care credit. Just remember that you can’t “double-dip,” or claim the same costs for both benefits, if you use both the dependent care FSA and the CDCC.
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