Dependents Child Care Tax Credit
Parents will get a $1,000 credit for a qualifying child under 17 at the end of the year. A qualifying child is your dependent who is a son, daughter, stepchild or eligible foster-child. This credit is generally non-refundable and can only reduce the taxpayer's income tax. Families with three or more qualifying children may be entitled to a credit in excess of their tax liability.
The IRS considers a person a dependent if the following criteria are met: if that person lives in your household or if the person is a relative that you support; if the person is a United States Citizen; if the person had a gross income less than $3,650 unless the person is a child under age 19 or a college student under age 24; and if you provide more than 50% of the person's support.
Child and Dependent Care
Are you a working parent able to claim a credit for your child care expenses? If so, you must provide the IRS with the care provider's name, address, and Taxpayer Identification Number (TIN) which can be a social security number or an Employer Identification Number (EIN). If the provider is a daycare center the TIN is their EIN. If the provider is an individual, the TIN is the social security number. If the provider is a church or nonprofit group and has no EIN, use the words "tax exempt" instead.
In Addition to Child and Dependent Care
Do you pay someone to come into your home and provide child care while you work? If you do, you may actually be an employer who is required to pay employment taxes. If the person you pay provides care in his or her home, you would not be considered their employer.
Do you pay child support? If you do, can that child be claimed as a dependent on your tax return? Unless dependency is covered in your divorce decree, the custodial parent generally claims a child. The custodial parent may sign IRS Form 8332 giving the dependent exemption to the other parent. Child support is neither income to the recipient, nor a deduction for the payer.
Taxpayers who pay for adoption expenses may be able to take a credit for qualified adoption expenses of up to $13,360 per child. If the taxpayer's modified adjust gross income is over $185,210, the credit begins to be phased out.
Are you a designated foster parent or thinking about becoming one? Foster parents who receive payments from a state, political subdivision or tax-exempt child placement agencies may have charitable deductions. If you spend money to provide support for foster children that is greater than the nontaxable payments you receive, you may be able to deduct that amount as an itemized deduction on Schedule A. You may do this if you are not making a profit or if you have no profit motive.
Children's Investment Income
Does your child under age 14 have investment income? If they do, and the total amount is more than $1,900, part of the amount may be taxed at the parent's rate. The child may file a tax return, including Form 8615, or you may be able to file Form 8814 and report your child's income on your return.
Signing Your Child's Tax Return
What do you do if children aren't old enough to sign their own return? When this occurs the parent should sign the return using the child's name and above or below include the words, "By (your name), guardian.