Question

Diane has a job working three quarter time. She hired her mother to take care of her two small children so Diane could work. Do Diane’s child care payments to her mother quality for the child and dependent care credit?

Answer 1

Filing Tax Form 2441: Child and Dependent Care Expenses

• If you hire someone to care for your disabled spouse or a dependent, and you report income from employment or self-employment on your tax return, you may be able to take the credit for child and dependent care expenses on Form 2441. ...
• General credit requirements. ...
• Earned and unearned income. ...
• Form 2441 care providers.

                                                     

The Child and Dependent Care Credit is limited to a range of 20% to 35% of $3,000 for one qualifying child or dependent under age 13 or $6,000 for two or more qualifying persons, depending on the taxpayer's Adjusted Gross Income.

If you hire someone to care for your disabled spouse or a dependent, and you report income from employment or self-employment on your tax return, you may be able to take the credit for child and dependent care expenses on Form 2441. There are a number of eligibility requirements you must satisfy first.

The care provider expenses you incur must be for the benefit of dependent children under the age of 13, your disabled spouse, or dependents of any age who are mentally or physically unable to care for themselves. Not every expense will qualify for the credit; the Internal Revenue Service only permits expenses that were necessary for you to go to work or look for a job.

Now according to the given question, There are two ways that Grandma can care for your children. In her home — or yours. If she cares for them in her own home, she’s in business for herself. You need to issue her a Form 1099-MISC. Grandma reports the income and deducts her office-in-home expenses using the special Day Care Center. She even gets to use a special set of standard numbers to write off the cost of meals and snacks for the children.

Payments to Grandma are not likely to qualify for this benefit — unless Grandma gets licensed as a child-care provider. After all, your siblings might want to hire Grandma too. The employer may either set up its own child-care facility to get this credit — or pay someone who already has a licensed facility.

Therefore, Diane’s child care payments to her mother is not qualify for the child and dependent care credit.