Have a Tax Question? Ask a Tax Expert
For child care credit purposes you are limited to claiming the credit on up to $3,000 of qualifying expenses per child up to a maximum of two children. Accordingly, the most child care expense you can consider for tax credit purposes is $6,000.
This credit is available for household and child-care expenses incurred to enable you (and your spouse) to be gainfully employed. The credit will range from 20% to 35% of qualifying expenses incurred up to a maximum of $3,000 for one child and $6,000 for two or more children. Qualifying expenses include expenses paid for household services and for the care of a qualifying individual. A qualifying individual is a person under the age of 13 for whom you may claim as a dependent or any other person who is physically or mentally handicapped.
The maximum credit is available for taxpayers with adjusted gross income of less then 15,000. The credit percentage is then reduced from 35% to 20%, by 1% for each $2,000 of AGI in excess of $15,000.
To calculate and claim the credit you need to complete Form 2441 http://www.irs.gov/pub/irs-pdf/f2441.pdf. You must have the name and employer I.D. (or SSN) of the provider in order to claim the credit.
You may also want to review the IRS Publication 503 at http://www.irs.gov/publications/p503/ar02.html, which discusses the childcare credit.
Generally you may only claim credits to the extent you have taxable employment related income. Generally, if you are married you must file a joint return to claim the credit. If one spouse is not working no credit will be allowed. The credit is also phased out for taxpayers with AGI above $110,000, with the credit reduced by $50 for each $1,000 or fraction thereof above the $110k threshhold.
Because it is impossible for me to identify and consider ALL the relevant facts, this advice is not intended or written to be used for the purpose of avoiding penalties, and cannot be used for that purpose.