How Child Care Tax Credits Work?

3) You (and your spouse) have earned income for work performed during the year

In addition to employee compensation, earned income includes net earnings from self employment. Earned income also includes nontaxable employee compensation such as:

• parsonage allowances

• meals and lodging furnished for the convenience of the employer

• voluntary salary deferrals such as deferrals under a section 401k deferred compensation plan reported on W-2 in box 12 with code D

• military basis quarters and subsistence allowances

• in kind quarters and subsistence

• military pay earned in a combat zone

Your spouse is treated as having earned income for any month that he or she is a full time student or physically or mentally not able to care for himself or herself. To be considered a full time student, your spouse must have been a student for some part of each of five calendar months during the year. This rule applies to only one spouse for any one month.

4) The care is provided for the qualifying person so you (and your spouse) can work or look for work

You must receive pay for the work. Work includes actively looking for a paying job as long as you have earned income during the year. If your spouse is incapable of self care or is a full time student for some part of each of five months of the year, he or she is treated as working.

5) The care provider is someone other than your spouse, the parent of your qualifying child under age 13, your child under age 19, or a dependent claimed on your tax return.

You can count work related payments to relatives who are not your dependents even if the live in your home.

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