Today TaxMama hears from Brad in Missouri who needs to decide. “I’ve got a question about childcare while we work. I can either pay a local teen $60/week cash or a mom $75/week. The teen doesn’t file taxes and thus I don’t think I can deduct it without forcing her to file, correct? The $75/week will let us declare it. Is it that big of a credit to worry about?”
Dear Brad,
If I were a parent of a small child, the first thing I’d look for in a caregiver is – honesty.
Do I really want to leave my child, all day, in the hands of a liar? If they will lie to someone as frightening as IRS, why wouldn’t they lie to someone sweet and harmless, like me? And will they be teaching my children that it’s OK to lie to me, too? But it’s your child or children. You need to decide on the importance of ethics in your caregivers.
As to the tax consideration – use Form 2441 Child and Dependent Care Credit.
https://www.irs.gov/pub/irs-pdf/f2441.pdf
The maximum credit for one child when your household income is over $43,000 is $600 . It’s $1,200 for two children. That’s worth about $12 per week, per child, for 50 weeks a year. This means the $75 per week honest caretaker will cost you an extra $3 per week, after using the credit.
The credit can be as high as $1,050 per child if your household income was only $15,000 – but then you would not likely need any credit at all anyway. Your taxes would be wiped out by your standard deduction and exemptions. So that rate is meaningless.
Incidentally, if you have no taxable income, but have self-employment taxes from business profits, the credit will not reduce self-employment taxes. So, now you have the tax tools to help you decide.
And remember, you can find answers to all kinds of questions about child care credits and other tax issues, free. Where? Where else? At TaxMama.com.
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- Form 2441 :: Child and Dependent Care Credit.
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