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Child Care Tax Credit

  Sanjiv Gupta CPA  Published 
Child Care Tax Credit

Child Care Tax Credit and Its Advantages

Children on their own are miracles. They make life more exciting and put a smile on your face every single day. In addition to these, having a child (or children) can also reduce your tax payments by up to $1,000/child. There are several qualifications needed to receive the child tax credit, but most are easy to meet. If you and your child can meet all 7 qualifications, you can receive a child tax credit in a very short amount of time.

Qualifications for a Child Care Tax Credit

 There are seven qualifications you must meet in order to receive this tax credit.

  • Age test
  • Relationship Test
  • Support Test
  • Dependent Test
  • Citizenship Test
  • Residence Test
  • Family Income Test

The age test requires your child or children to be no more than 17 years old upon your claim of the tax credit.

The relationship test requires that your child or children belong to you. This means that the child or children must be biologically yours, yours by marriage (stepchild), or lawfully placed in your care by the foster care system. You are also allowed to apply the child tax credit to your brother, stepbrother, sister, or stepsister if they have been lawfully placed under your care.

The support test requires that your child or children be unable to supply more than half of his/her own financial support over the course of the tax year.

The dependent test required that your child or children must be claimed as a dependent under your care. Being claimed as a dependent means that the child is yours, under the age of 19 or permanently disabled, and must have lived under your care for at least 6 months.

The Citizenship test requires that your child or children be born U.S. citizens, a U.S. resident alien, or a U.S. national.

The residence test requires that your child or children must have lived with you for at least 6 months. However, if your child was born during the tax year or fits into one of the exceptions listed below he/she is considered a resident under your care.

  • School
  • Vacation
  • Medical care
  • Business
  • Juvenile facility
  • Military services

The family income test applies only to the parents asking for the child tax credit. The MAGI limit for a married couple (filing individually) is $55,000. The MAGI limit for a single parent is $75,000 and the MAGI limit for married couples (filing together) is $110,000.

Common Child Care Expenses

Parents know that health care, schooling, after school activities, are all expensive and they all add up.

  •  Doctor’s visits can be costly, with or without insurance. Paying for check-ups, getting your child the appropriate shots, medications, emergency hospital visits, can cost you anywhere from $20 to $1000 per visit.
  •  Schooling can be equally as expensive, if not more so. Preschool, kindergarten, grade school, high school, college, that’s hundreds of dollars as it is. When you add in school supplies and the type of school you want your child enrolled in, you’re looking at the thousands.
  •  After school activities, if you plan on enrolling your child in some, add up as well. Taking on karate lessons, gymnastics, cheerleading, school clubs or sports teams can cost you around $100 or more.
  •  Food/Clothing, although not as costly individually, can take a toll on your total as well. Buying enough food to support your child or children tends to cost the average person around $50-$100/week per child. Add onto that the cost of clothing and you are again looking at the hundreds.

How Child Tax Credit Can Help

The childcare credit will give you a cut on those expenses and give you a portion of your money back.

  • One child-parent will receive 35% of up to $3,000 back on expenses paid for their child, at the end of each tax year.
  • Two children – parent receives 35% of up to $6,000 back on expenses paid for their child, at the end of each tax year.

This percentage will vary depending on your income, but the average is around 35%.

Basically, with each child you have, the amount of money being taxed from increased by $3,000 and the parent will receive 35% of their childcare costs back.

Consider Applying

 Regardless of whether or not you could use the money back, have tax credit on your children to ensure that your child is protected and taken care of financially. You are free to purchase health care for your kid(s) knowing that a percentage of it will be given back to you every year.

You can save money for those family vacations and splurge on an extra toy every so often. Save yourself the expenses and apply for a Child Tax Credit as soon as you can.