Dependent Care Credit IRC 21 - John R. Dundon II, Enrolled Agent
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Dependent Care Credit IRC 21

Business Entity Selection and the Tax Consequences of Converting

Dependent Care Credit IRC 21

According to Internal Revenue Code Section 21, the maximum tax credit as of this posting date remains at $1,050 (35% of $3,000) for one qualifying individual and $2,100 (35% of $6,000) for two or more. This credit is for expenses paid for the care of your qualifying children under age thirteen, or for a disabled spouse or dependent, to enable you or your spouse (if Married Filing Jointly) to work or look for work.

A qualifying person is a dependent child, age twelve or younger and/or your spouse or other certain individuals who are physically or mentally incapable of self-care.

In order to qualify you (or your spouse if MFJ) must have earned income from wages, salaries, tips, other taxable employee compensation, or net earnings from self-employment.

Additionally:

1. Payments for care can not be made to a spouse or dependent.

2. You are precluded from the credit if your filing status is Married/separate.

3. The qualifying person must have lived in the home with you for more than 6 months.

4. You may use up to $3,000 of expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.

5. Qualifying expenses must be reduced by the amount of any dependent care benefits provided by your employer that are excluded from income.

Most importantly:

If an individual is paid to come to your home and care for your dependent or spouse, you pretty much by default become a household employer liable for employment tax reporting and payment obligations. Check out IRS Publication 926.



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