J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

25.5 Limits on the Dependent Care Credit

The credit is a percentage of expenses paid for the care of a qualifying person (25.7) to allow you to work and earn income. Qualifying expenses are discussed at 25.8. The credit percentage depends on your income.

Caution: Less favorable credit rules will take effect in 2013 unless the 2012 rules discussed below are extended. Congress is expected to pass an extension but had not yet done so when this book went to press; see the e-Supplement at jklasser.com for an update.

Limit on expenses.

In figuring the credit for 2012, you take into account qualifying expenses (25.8) up to a limit of $3,000 for one dependent, or $6,000 for two or more dependents. The $3,000 or $6,000 limit applies even if your actual expenses are much greater. Further, the $3,000 or $6,000 limit must be reduced by tax-free benefits received from an employer’s dependent care plan. Finally, if your earned income is less than the $3,000 or $6,000 limit, your credit is figured on the lower income amount.

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Filing Tip

Employer Reimbursements Reduce Credit

Expenses qualifying for the dependent care credit are reduced by any tax-free reimbursements under a qualified employer dependent care program. That is, the reimbursements reduce the 2012 expense limit of $3,000 for one dependent, or the $6,000 expense limit for two or more qualifying dependents (25.8) ...