Child and Dependent Care Credit Eases Burden of Working Families

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Child Care Credit

Most working parents would find it impossible to work without paying someone to care for their children. The same holds true for individuals who care for an aged parent or disabled relative who is physically or mentally incapable of self-care. The child and dependent care credit eases the financial burden for working parents and caregivers, reports the Colorado Society of CPAs.

CREDIT AMOUNT TIED TO AGI

The credit can range from 20 to 35 percent of qualified work-related child and dependent care expenses. Whether you can claim 20 percent, 35 percent, or somewhere in between depends on your gross income and number of dependents. For 2004, you may count up to $3,000 of the expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals.

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WHO IS A QUALIFYING CHILD OR DEPENDENT?

For the purpose of the child and dependent care credit, you must maintain as your principal home a household for a child under the age of 13 whom you may claim as your dependent. Persons who cannot dress, clean, or feed themselves, or who need constant attention to prevent them from injuring themselves or others qualify as well.

The Working Families Tax Relief Act of 2004 created a common definition of "qualified child" for the dependent care credit, as well as the child credit, the dependency exemption, the earned income tax credit, and other child-related tax breaks. Effective in 2005, general tests involving residency and relationship to the taxpayer will be the same across the Tax Code, but different provisions will continue to use different cut-off ages.

ADDITIONAL GUIDELINES APPLY

As you might expect, there are a number of additional requirements you must meet before you can claim the child and dependent care tax credit. First, the care must be necessary so that you can work or look for work. If you are

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