By Tom Breedlove, Director, Care.com HomePay
As the April 15th tax filing deadline gets closer, those who have put off their taxes until the last minute – and there are a lot of us – are apt to forgetting minor details that can impact our returns. In the household employment world, two commonly overlooked tax-time items for New York families are the federal and state dependent care tax breaks.
To qualify for these, both spouses must either be working or a full-time student and have expenses related to the care of someone they can claim as a dependent. For the federal tax break, families should use IRS Form 2441. They may itemize up to $3,000 for 1 dependent and $6,000 for 2 or more dependents. Most families will receive a 20% tax credit on these expenses, saving up to $600 if they have 1 dependent and up to $1,200 if they have 2 or more dependents. According to 2012 data from the IRS, approximately 420,000 New York families took advantage of this credit and saved an average of just under $600.
The New York state tax credit for dependent care is very similar to federal tax credit. Families can use Form IT-216 and claim the same expenses they reported on IRS Form 2441. The state tax credit for most families will be 20% of the credit they receive from the IRS – meaning they can save up to $120 if they have 1 dependent and $240 if they have 2 or more dependents. It seems like a small amount, but every little bit helps.
Please keep in mind that these tax breaks assume the family is paying their caregiver legally. The IRS and the state of New York only reward those who put forth the effort to do things the right way. The tax breaks exist to help offset the cost of paying employment taxes, which means paying the caregiver “on the books” isn’t really as costly as many people think.
Learn more about our services by visiting www.littmankrooks.com.
Was this article of interest to you? If so, please LIKE our Facebook Page by clicking here.