Child and Dependent Care Tax Credit Law and Legal Definition

Child and dependent care tax credit is a tax credit available to a person who is employed full-time and who maintains a household for a dependent child or a disabled spouse or dependent. Tax credit is the dollar for dollar reduction in the amount of taxes owed by a taxpayer. The provisions relating to this are codified in 26 USCS § 21. According to 26 USCS § 21, in order to qualify for the child and dependent care credit, the tax payer must have:

Dependents under age 13 for whom a dependency exemption may be claimed.

2) Dependents of any age who share the same principal place of abode as the taxpayer and are physically or mentally incapable of taking care for themselves.

3) Spouses of any age who share the same principal place of abode as the taxpayer and are physically or mentally incapable of taking care for themselves.

The taxpayer is required to “maintain the household” for the qualifying individuals which means the taxpayer must furnish over half of the total cost of maintaining the household. In addition, if the taxpayer is married, both the taxpayer and their spouse must have earned income, unless one spouse was either a fulltime student or was physically or mentally incapable of self care. Creditable expenses include not only those incurred for actual physical care of the dependent but also ancillary household services like meal preparation and cleaning. The tax credit provided is a percentage, based on the taxpayer’s adjusted gross income, of the amount of work–related child and dependent care expenses the taxpayer paid to a care provider. Generally a taxpayer can receive a credit anywhere from 20-35% of such costs against the taxpayer’s federal income tax liability.