Connect With Us
Congress and the IRS both recognize that in many situations you have to spend money to make money. This is especially true of working parents, many of whom would find it impossible to look for a job, let alone actually work at it, without paying someone to look after their children. Those who are responsible for looking after an aged parent or a disabled relative often find themselves in the same position.
To lighten some of the extra burden that falls upon working parents and those caring for disabled dependents, Congress has provided three basic types of tax benefits for employees or the self-employed:
There is also a $1,000-per-child credit through 2012. This credit is available to all parents and does not depend on whether or not one or both parents work outside the home.
You must choose your benefit. To some extent, the child and dependent care credit, and the exclusion for employer-provided dependent care assistance, are mutually exclusive. If you use one, you might be totally or partially precluded from using the other.
Thus, if your employer offers any assistance for dependent care, you'll have to decide which strategy saves you more money: taking advantage of your employer's assistance program or claiming the tax credit. In certain limited circumstances, you might be able to combine methods.
The following sections discuss the ins and outs of the credit for child and dependent care: