Tax Advice & Tips:
- The Dependent Care Credit is based on the first $3,000 spent on dependent care. It's calculated by percentage depending on your income. The lowest possible (meaning those in the upper income brackets) percentage you could get would be 20%, or $600. For those with lower incomes, it can be even more. Cash gifts given to childcare providers can also be included in that $3000. Providers must count cash gifts as income. Alison says parents most importantly need their provider's tax id number. If parents try and fail to get the provider's tax id, they can still claim the credit.
- For childcare in the home - if you pay $1600 or more per year, you need to treat the provider as a household employee and have Social Security tax, etc. withheld. Check with an accountant for all the ramifications of this.
- For those who get dependent care benefits through work, this is always a good deal since the money you set aside is pre-tax.
- K-12 Educators can get a deduction for the first $250 spent out of pocket on classroom supplies.
Child and Dependent Care Credit: The credit applies not only to care for children under age 13, but also to care for disabled children and spouses.
Taxpayers can read all the specifics about the credit by referring to IRS Form 2441:
>> http://www.irs.gov/pub/irs-pdf/f2441.pdf (form)
http://www.irs.gov/pub/irs-pdf/i2441.pdf (instructions)
Publication 503, Child and Dependent Care Expenses:
http://www.irs.gov/pub/irs-pdf/p503.pdf
Taxpayers can get more information on babysitters from these two publications:
IRS Household Employer's Tax Guide:
http://www.irs.gov/pub/irs-pdf/p926.pdf
California Household Employer's Guide for 2009:
http://www.edd.ca.gov/pdf_pub_ctr/de8829.pdf
IRS Form 1040 Schedule H:
http://www.irs.gov/pub/irs-pdf/f1040sh.pdf (form)
http://www.irs.gov/pub/irs-pdf/i1040sh.pdf (instructions)
Featured guest:
About Alison T. Jacks, E.A.
Alison T. Jacks is an Enrolled Agent tax professional specializing in income tax preparation for California Family Child Care Providers. A graduate of the University of California, Berkeley, Alison understands child care tax issues. Her highest priority is communicating effectively with day care providers regarding record keeping and tax preparation so that they pay the lowest tax and avoid audit troubles. Alison also appreciates her many long-time, non-day care clients whom she helps with stock options, rental properties, and much more.
Alison has been working with clients in her local communities of Fremont, Newark, Union City and the greater San Francisco Bay Area since 1995, initially doing business as Taxes On The Net and now as Family Child Care Taxes. Via email, fax and phone she works with clients throughout the state of California.
>> Website: http://www.alisonjackstax.com
