Which Parent Claims the Child Care Tax Credit?

Unmarried parents: Don’t overlook this benefit in Ohio

There are several income tax benefits for parents of younger children. If the parents are unmarried or divorced, however, these benefits must be split between the two in some way. Unfortunately, court orders do not often designate which parent receives the tax benefits. And if the order does designate which parent receives the tax benefit, the order may not meet IRS rules.

One lesser-known income tax benefit is the child care tax credit, a tax reduction for expenses paid toward work-related child care. A parent claiming the credit may receive between 20 percent and 35 percent of their work-related child care payments. No more than a maximum of $3,000 in expenses for one child or $6,000 for two children can be claimed—but this allows for a credit as high as $600 to $1000 for one child, and twice that for two.

Custodial parent gets the credit

An unmarried parent must meet the requirements of the federal tax code for taking the child care credit. One requirement is that the parent claiming the credit must be the “custodial” parent under IRS rules. The custodial parent is the parent with whom the child lived for the greater number of overnights during the tax year.

A child is treated as living with a parent for a night if the child sleeps at that parent's home—regardless of whether or not the parent is present—or in the company of the parent, say, if they’re on vacation. There is an exception available for a parent who works at night.

If the child lived with each parent for an equal number of overnights throughout the year, the custodial parent is the parent with the higher adjusted gross income.

For a “qualifying” child

The child for whom the child care expenses are claimed must meet the definition of a “qualifying” child under federal tax rules. A qualifying child is a child who was 12 years of age or younger (with some rare exceptions) when the child received the care. They must also be the parent’s “dependent,” or one for whom a parent can claim an exemption.

Parent must have earned income

Another requirement to claim the child care tax credit is that the claiming parent (and their spouse, if filing jointly) must have earned income during the year. A tax filer should consult the IRS publication for what earned income will qualify them under the law. However, earned income does not include:

  • Workers’ compensation payments
  • Pensions or annuity payments
  • Social security benefits
  • Interest and dividends
  • Unemployment compensation
  • Scholarships or fellowship grants

Child care costs must be work-related

To qualify, the child care costs incurred must have been incurred to allow a parent (and their spouse, if filing jointly) to work or seek work—child care incurred for date nights will not qualify. The work can be part-time or full-time, and can be self-employment. While child care costs can be included for periods of time a parent is looking for work, if the parent doesn’t find a job and earns no income for the tax year, they can’t take this credit.

Parents may want to consult with one another to determine who will claim the child care tax credit. If there is a dispute over the credit, the parents may need to go to court to resolve the dispute. Parents in this situation should seek out an experienced Ohio family law attorney to discuss their options.

For more information on this area, see our overviews of family law, divorce, and mediation and collaborative law.

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