Working parents know how expensive child care can be. The Dependent Care Tax Credit aims to ease some of the burden.
Basically, the credit works like this: If you pay someone to care for a dependent under age 13, you may be eligible for a tax credit of up to $2,100. The credit is a percentage of qualifying expenses that range from 20% to 35%, depending on your AGI. You must have earned income to receive the credit and if married, file a joint return.
The dollar limit on the expenses toward which you can apply the credit percentage is $3,000 for the care of one qualified dependent and $6,000 for the care of two or more. Thus, the maximum credit allowed in 2011 is $1,050 if you have one qualified dependent and $2,100 if you have two or more qualified dependents.
I should note that the dependent care credit is reduced by the value of qualifying day care provided by your employer under a written, non-discriminatory plan, which generally is not taxable up to $5,000 ($2,500 if married filing separately).
This credit is not restricted to child-related care costs. If you pay someone to look after an incapacitated spouse or dependent of any age, such as a parent or disabled family member, you may also be eligible for this tax break.
