For about a month, my friend has been watching my baby for 30 hours a week. I pay her around $325.00 each week. We haven't been keeping track or receipts and I have recently learned of a daycare refund on the annual taxes. Can I qualify for this refund? (forgive me,, when it comes to taxes.. i am hopeless). What do I need to do to ensure this refund? Are handwritten receipts on her behalf eligible? What must she do on her end? Thanks!
2007-08-26 11:47:41 · 3 answers · asked by Aprilla 3 in Business & Finance ➔ Taxes ➔ United States
First of all it is a credit against your tax liability. The amount of this credit ranges from 35 to 20% (depending on your income level) of the amount paid for day care up to a max of $3,000 for one child and $6,000 for two or more. To receive this credit you need to know the name, Tax ID number (SS or EIN #), address and phone number of the person that you paid. You should have some means to varify what you paid. A statement from the provider will do fine. The day care provider must report the amount you paid her on her tax return. There is no penality for you if she does not however.
2007-08-26 12:08:20 · answer #1 · answered by ? 6 · 3⤊ 0⤋
The Child and Dependent Care Credit is claimed on Form 2441 with Form 1040 or Sch 2 with Form 1040A. This is a non-refundable credit (it cannot reduce your tax below zero)
To claim the credit, you need the SS# of the person that provided the care and their address. Complete the form to calculate the amount of your credit.
On her end, she will have to report this income on a Sch C and also pay self employment tax on the amount if the net amount is over $400.
If this is her only income, she most likely will not have an income tax liability, but may owe self employment tax.
She can reduce the amount of income if she has expenses to offset the income. Sch C lists the common types of expenses. In addition, she may be able to deduct the cost of food provided to your baby if she paid for it.
2007-08-26 19:08:34 · answer #2 · answered by Mark S 5 · 2⤊ 0⤋
If she is watching your baby so you can work, then you would be able to claim a dependent care credit on your tax return. Handwritten receipts are fine. You will need her social security number to put on your tax return along with her name and address, and the amount that you paid her.
She will have to claim the amount you are paying her as income. She needs to do that by law whether or not you claim a dependent care credit for the amount on YOUR tax return.
2007-08-26 19:09:03 · answer #3 · answered by Judy 7 · 2⤊ 0⤋