Child- and Dependent-Care Credit
Taxpayers who pay someone to care for their child and/or other dependent so the taxpayers can work are eligible for a credit based on the amount of their expenses and their earned income level; it is known as the child- and dependent-care credit. This credit is designed to encourage taxpayers who work and have children to pro- vide them with adequate care while they are at work. It also provides tax relief to lower-income working families who have children at home. The child- and dependent- care credit is a nonrefundable credit. To qualify for the credit, a taxpayer must meet two conditions:
. Thetaxpayermustincuremployment-relatedexpenses. 2. Theexpensesmustbeforthecareofqualifiedindividuals.
An employment-related expense is one that must be paid to enable the taxpayer to work and must be paid for either household services or for the care of a qualified indi- vidual. Generally, the expenses must be incurred within the taxpayer’s home, although out-of-the-home expenses for dependents younger than 13 and for a dis- abled dependent or spouse (if the disabled person has the same principal residence for more than one-half year) also qualify. The exception for the disabled encourages indi- viduals to keep disabled dependents or a spouse in the home rather than institutional- ize them.30
A qualifying individual includes any dependent younger than 13 or a dependent or a spouse of the taxpayer who is physically or mentally incapacitated. A taxpayer can claim the child- and dependent-care credit for a dependent who lives with the taxpayer for more than one-half of the year, even if the taxpayer does not provide more than one-half of the cost of maintaining the household.