The landmark tax legislation that the republicans passed in 2017 comes into full power this year. Everything is different from previous years, especially how child tax deductions and credits are factored into your tax return. The child and dependent care tax credit is meant to ease the burden of working families by providing a credit on their taxes to help alleviate the overwhelming costs of childcare. But what is the income limit for the 2019 child care tax credit?
For the child and dependent tax care credit, there is no income limit, however, the amount of credit decreases with your income, according to the Internal Revenue Service (IRS). They wrote that your credit will range between 20 and 35 percent of your allowable expenses, so higher income earners will see less of a credit than lower income earners, but it will never go away entirely. The amount credited is $3,000 for child or dependent, and $6,000 for two or more dependents. Because it's a non-refundable credit and not a deduction or refundable credit, it can bring your tax bill to zero, but you will not receive a refund on any potential overage of these benefits, whereas the child tax credit is a refundable credit worth $2,000 per child, $1,400 of which is refundable. However, there are a ton of rules on the dependent care tax credit, and they make it really hard to attain.
OK, deep breath (really dig into your zen here — or your zin, you might need both), here's what the IRS has to say:
- The tax credit does not apply to stay at home parents — your time is of no value to the federal government, and therefore you receive no benefit for your time.
- You must be sending your child to an approved child care worker or center.
- You cannot pay your dependent child who is under the age of 18 and claim the credit, even if they watched your other child all summer, and you shelled out a pretty penny because that's the right thing to do.
- You cannot get the credit if you pay your ex-spouse or ex-partner if they are the parent of the child, even if that's quite the amazingly adult arrangement you have there.
- If you have childcare benefits from your employer, those will be deducted from the credit according to special rules delineated by the IRS. These rules are very complicated, and I highly suggest talking to a tax professional, because it has to do with pre-tax versus post-tax benefits and deducted income variants.
- Sleepaway camp in the summer is not considered an allowable expense and therefore will not be considered for the credit. However, day camp very well might be.
- You have to have earned income in the tax year, not just interest from investments to benefit from the tax credit.
- The child or dependent must have a social security number.
- You must have the receipts.
So what is the income limit for the child care tax credit? There's no upper limit. But that benefit is on a sliding scale dependent upon your income and how you've paid for it, and who you've hired.
A lot changed between 2017 and 2018, the most significant being the elimination of the personal exemption as well as the the tax refund cap on local taxes like property and income taxes. This means that not only will you have the potential to be taxed twice on the same income — legally — but that buffer of the $4,050 personal exemption is gone, as per the IRS. Even with the expanded refundable child tax credit, this can severely impact your tax bill. This year, you should really consider visiting a tax professional if you can afford it. Alternatively, talk to your local librarian — many libraries across the country offer income tax assistance. This year is the year to make every dollar that you spend in taxes count.