Day Care Tax Credit And Divorce

A taxpayer may claim a credit on his Federal Income Tax return for the cost of daycare of a dependent, if the costs allow him or her to be gainfully employed. The credit is 35% of the qualifying dependent care expenses for taxpayers with adjusted gross income of $15,000.00 or less. It declines by 1% though for every additional $2,000.00 of income until it reaches 20%. The credit can be taken on up to $3,000.00 of costs in the case of one dependent and up to $6,000.00 in the case of two or more dependents. Thus the maximum credit is $2,100.00 . A taxpayer earning $100,000 a year with one dependent could take a maximum credit of $600.00.

One of the requirements for the credit is that the child must live with the taxpayer for more than six months of the year. As a divorce lawyer I often see parents trying to claim the credit on day care expenses, because the divorce judgment allows them to claim the exemption for the dependent on his or her tax return. This is not correct. Only the taxpayer who provides the principal residence for over six months may claim the credit. Unlike the dependency exemption it may not be transferred by agreement.