are child care expenses tax deductible
Code section 17052.6 (b).) The credit for child and dependent care expenses is. refundable for California purposes. If a taxpayer owes. state taxes for any taxable year, the credit first is applied. to paying the taxes and any remaining amount of the. credit will then be refunded to the taxpayer. (Rev. & Tax. Costs of day care for your little ones are not considered “ordinary and necessary” expenses of running a business and are thus not deductible business expenses. The good news is that there are other ways to get favorable tax treatment for any amounts you spend on child care. California Child and Dependent Care Expenses (CDC) Credit. 1. INTRODUCTION. This Law Summary explains the requirements that must. be met for a taxpayer to establish qualification for the. Child and Dependent Care Expenses (CDC) Credit. Revenue and Taxation (Rev. & Tax.) Code section. 17052.6 sets forth the rules for who is entitled to the. California CDC Credit by reference to Internal Revenue. Code (IRC) section 21. Annual Limit for Child Care Expenses Based on Income. The claim for child care expenses cannot exceed two-thirds of your earned income for the year. The above limits can be found in the Canada Revenue Agency (CRA) form T778 Child Care Expenses, which is filed with the tax return to make a claim for child care costs. The T778 also includes the definition of earned income. To qualify for the child and dependent care credit, you must have paid someone to care for one or more of the following people: • A child age 12 or younger at the end of the year whom you claim as a dependent on your tax return. A $1,000 tax credit cuts your tax bill by $1,000. • You can claim the credit regardless of your income. A lot of tax breaks have income limits and are not available at all to people with incomes above those limits. The child and dependent care credit does get smaller at higher incomes, but it doesn't disappear. In most cases, child care expenses for an eligible child must be claimed by the parent with the lower net income for tax purposes. If the parents are separated and share custody, sometimes each parent may claim a portion of the child care costs. The size of your credit is based on how much you spend for child and dependent care, as well as your income. • Add up the total amount of your care expenses that qualify for the credit. The maximum amount of care expenses you're allowed to claim is $3,000 for one person, or $6,000 for one or more people. Line 214 Child Care Expenses. Child care costs are not claimed as a non-refundable tax credit, but as a deduction from income on line 214 of the personal tax return. A non-refundable tax credit is always at the lowest tax rate (except in Quebec), but a reduction of income would save tax at the taxpayer's marginal tax rate. Benefits of the tax credit. The child and dependent care credit is a tax break specifically for working people, says Matt Becker, a financial planner and founder of Mom and Dad Money. Child care is expensive, and the cost gives many parents pause about whether it's worth returning to the workforce, Becker says.
Yes, Child care costs are not claimed as a non-refundable tax credit, but as a deduction from income on line 214 of the personal tax return.