The Child and Dependent Care Credit reduces taxes to offset the cost of daycare when you are employed. The maximum amount of the credit is $3,000 for one dependent or $6,000 for two or more qualifying persons. If your employer provides daycare reimbursement as a benefit on your W-2, the employer benefit is limited to $5,000 or $2,500 if married, filing separately, or single. You can still use excess daycare expenses to maximize your credit to $3,000/$6,000.

The child and dependent care credit

Here is what you need to know to take advantage of the credit.

1. Qualified dependent(s). Your dependent must be under the age of 13. A spouse or older dependent who is physically or mentally unable to care for themselves can also qualify.
2. Earned Income. You must have earned income to support the credit.
3. Qualified daycare expenses. You must incur the care expense for the qualified dependent.
4. Financial support requirement. You must maintain the home and financial support for the qualified dependent (more than half the cost and more than half the year).

Some additional tips to reduce taxes

• Partial expense coverage. The credit only covers a percentage of your qualified care expenses. The amount depends on your income, with a high of 35% of the qualified costs down to a low of 20% of the daycare expense.
• Obtain a proper ID. Most daycare organizations will provide an expense summary at the end of each tax year. This form will tell you how much you spent in care and provide the proper tax ID for their organization. If someone else cares for your dependent, ensure you receive their tax information. It will be needed when you file for the credit on your tax return.
• Not equal. If you have two or more qualified dependents, the daycare expenses do not have to be equal for each. For example, you could use $5,000 for one dependent and $1,000 for the rest.
• Education expenses. Preschool, nursery, and other educational programs can qualify if levels are lower than kindergarten. Full-day kindergarten fees DO NOT qualify.
• Leverage summer. Summer day camps and similar activities can qualify for the credit. So, too, can hiring a nanny to care for the kids while you are at work and the kids are out of school.

Other details apply. Contact our RRBB advisors if you wish to review your situation.