People get stressed when tax season approaches as everyone is required to file their taxes correctly or face significant financial consequences. This year however, parents get a reprieve as they can write off up to $8,000 through the childcare tax credit. The following points will provide insight into how you can lower your taxes.
How parents benefit from the childcare tax credit
The child and dependent care credit have made it possible for parents to lower their taxes for childcare. They can do it in the form of daycare, transportation, and babysitters. However, you need to present receipts and monetary proof to claim the tax break when you file income returns.
The 2021 tax return has gone up from $3,000 to $8,000 for a single child. For two or more children, the figure has gone up from $6,000 to $16,000. A parent can write off up to 50% of the expenses depending on one’s income. The good news is that the 2022 credit is refundable- if an individual has no tax liability, they can get the credit as a refund.
How can you claim childcare expenses when filing your taxes?
First, you need to have a compiled account for the expenses that you spend on your child. Additionally, you should include the receipts. Next, you will have to complete Form 2441 and ensure you attach it to the duly filled Form 1040 tax return. The Internal Revenue Service (IRS) requires parents to fill in the employer identification number or social security number of the care provider. If you are wondering how to access this information, send the caregiver the Form W-10 to access it.
Factors to consider when awarding the tax credit:
1. Income:
As a prerequisite, a parent should be earning income to qualify for the childcare credit. It can be through salary through full or part-time employment or wages from unemployment. If an individual is married and is filing a joint tax return, all persons must have earned income. Individuals who the government exempts are those receiving disability benefits and full-time students.
2. Age:
For a dependent to qualify, they must be under the age of 13 or be unable to take care of themselves due to impairment. Also, people who have physical or mental disabilities qualify. The qualifying dependent should also have a tax identification number.
3. Marriage status:
The custodial parent is the only one who can claim the childcare credit. The IRS indicates that the custodial parent has lived with the child for the highest number of nights in 2021.
Follow the points wisely so that you can lower your child care expenses this year.
Photo by Annie Spratt on Unsplash