CLIENT REPORT:

Final Regulations on Child and Dependent Care Tax Credit

Dear Client:

As you may know, the IRS has issued final regulations on the child and dependent care (CDC) tax credit. The regulations, which apply to tax years ending after August 14, 2007, update and clarify the rules regarding household and dependent care expenses that qualify for the CDC tax credit.

Qualifying employment-related expenses are those that enable you (and your spouse, if married) to be gainfully employed, such as expenses for housekeepers and cooks. The maximum amount of employment-related expenses to which the credit can be applied is $3,000 if one qualifying individual is involved and $6,000 if two or more qualifying individuals are involved.

To be eligible for the credit, your expenses must be attributable, at least in part, to the care of a child under the age of 13 or for a disabled spouse or dependent. Specific issues covered by the new regulations are summer school, day camp, care centers for sick children, absence from work, shift workers, students at on-line institutions, kindergarten expenses, and live-in caregivers. There are special rules that apply to children of separated or divorced parents, GO Zone qualifying individuals, and costs for care provided outside of your home.

Since one way to minimize your tax liability is to maximize your deductible expenses and tax credits, I would be happy to discuss this development with you in greater detail. If you think you may qualify for the CDC tax credit, or if you would like further information, please call my office at your earliest convenience to arrange an appointment.

Sincerely yours,

Julie M. Straw, CPA

Reproduced with permission from CCH’s Client Letter, published and copyrighted by CCH Incorporated, 2700 Lake Cook Road, Riverwoods, IL 60015.