Childcare Tax Credit

Last week, I mentioned that I am paying for childcare for my son over the summer. It’s not going to be a ton, but it will still be an expense. Luckily, even with a home business, I can get a childcare tax credit when I pay someone to watch my son. Even if it is my cousin. In order to claim a childcare tax credit, you will need to identify the care provider on your tax return. You will need:

1. Full name of the care provider or the business.

2. Social Security Number of the child care provider, or the Employer Identification Number (EIN) of the child care facility.

3. Address of the child care provider or business.

There are directions in your tax forms to help you figure out how much of a credit you are eligible for. Also, realize that if you have someone come to your home to provide these services (such as my cousin), you might be considered a household employer, and will have to withhold and pay social security and Medicare tax. Make sure you double check your status. My accountant says that if I issue a 1099 to my cousin and pay through my home business, I can pay her as a contractor for my business, and avoid the tax withholdings.

You can find out more about taking the child care tax credit from the IRS Web site. It is also a good idea to consult with a tax professional and/or accountant to make sure that you are abiding by law in the specifics of your situation.