Dependent Tax Credits FAQs Text Size:

• A family member baby-sits my child full time in her own home while I work. Are either of us responsible for taxes on the money I pay? Can I deduct this money as my childcare expense, even though my family member is not a registered daycare provider?
• Am I eligible for the Hope Credit as I'm just entering my second year of my second bachelor's degree program?
• Can a custodial parent claim the Child Tax Credit if the noncustodial parent claims the child as a dependent due to the divorce agreement?
• Can I claim the Child and Dependent Care Credit?
• I am a student who is claimed as a dependent on my parent's tax return. Can I take the Lifetime Learning Credit on my tax return?
• I am the custodial parent and pay child care expenses. Can I claim child care expenses in the years my ex-spouse takes the exemption?
• If I send my child who was under the age of 13 to day camps instead of a childcare facility for the summer, are these deductible expenses?
• May I include my five-year-old son's parochial school kindergarten tuition cost as a qualified expense on IRS Form 2441, Child Care Expenses?
• What do I need to save to claim the Hope Credit?
• What is a "Hope Credit?"
• What is a "Lifetime Learning Credit?"

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Q: A family member baby-sits my child full time in her own home while I work. Are either of us responsible for taxes on the money I pay? Can I deduct this money as my childcare expense, even though my family member is not a registered daycare provider?

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• A: You may have deductible childcare expenses if the family member is not your dependent and you meet all the tests to claim the Child and Dependent Care Credit. Your family member will be responsible for paying taxes on the money earned and will be considered to be self-employed.

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Q: Am I eligible for the Hope Credit as I'm just entering my second year of my second bachelor's degree program?

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• A: Since you have already completed your first two years of postsecondary education, the courses you're now taking don't qualify for the Hope Credit. You may be eligible for the Lifetime Learning Credit.

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Q: Can a custodial parent claim the Child Tax Credit if the noncustodial parent claims the child as a dependent due to the divorce agreement?

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• A: The custodial parent cannot claim the Child Tax Credit for a child in the tax year that the noncustodial parent takes the exemption for that child. Please refer to the IRS 1040 Instruction Booklet index for Child Tax Credit. The referenced pages will explain who qualifies for this credit and how to calculate it.

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Q: Can I claim the Child and Dependent Care Credit?

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• A: If you paid someone to care for your dependent under age 13 or your disabled dependent or spouse so that you could work or look for work, you may be able claim the credit for child and dependent care expenses.

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Q: I am a student who is claimed as a dependent on my parent's tax return. Can I take the Lifetime Learning Credit on my tax return?

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• A: No. If your parents claim you as a dependent, you cannot claim either of the education credits. However, any qualifying tuition payments that you made can be claimed by your parents as paid by themselves and may qualify them for the Hope or Lifetime Learning Credit.

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Q: I am the custodial parent and pay child care expenses. Can I claim child care expenses in the years my ex-spouse takes the exemption?

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• A: The Child and Dependent Care Credit can only be claimed by the custodial parent. This is true even if you cannot claim the child's exemption for that year.

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Q: If I send my child who was under the age of 13 to day camps instead of a childcare facility for the summer, are these deductible expenses?

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• A: The cost of day camp may qualify as a childcare expense. The cost of overnight camp would not.

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Q: May I include my five-year-old son's parochial school kindergarten tuition cost as a qualified expense on IRS Form 2441, Child Care Expenses?

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• A: The expenses for kindergarten don't qualify for the dependent care credit, because kindergarten is primarily educational in nature. However, you can count the part of the expenses for your child's care, if it can be separated from the expenses of education.

  If your child is in the first grade or higher, or if the cost of schooling can be separated, you must divide the total cost between the cost of care and the cost of schooling. You can count only the cost of care in figuring your credit.

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Q: What do I need to save to claim the Hope Credit?

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• A: You should keep all your canceled checks that were used to pay for the qualifying expenses and any other documentation showing the amount of tuition and fees paid.

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Q: What is a "Hope Credit?"

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• A: It is a nonrefundable tax credit for a student's first two years of undergraduate education. You can claim a Hope Credit for an eligible student who is:
  • Enrolled in one of the first two years of postsecondary education (generally freshman or sophomore years of college)
  • Enrolled in a program that leads to a degree, certificate, or other recognized educational credential
  • Is taking at least one-half of the normal full-time workload for the course of study for at least one academic period beginning during the calendar year
  • Is free of any felony conviction for possessing or distributing a controlled substance (drugs)

  An eligible student can be you, your spouse, or an eligible dependent.

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Q: What is a "Lifetime Learning Credit?"

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• A: The Lifetime Learning Credit is a nonrefundable tax credit for all undergraduate and graduate level education. An eligible student can be you, your spouse, or an eligible dependent. In any one tax year, only one person can claim a higher education credit for a student's expenses.

  Both the Hope Credit and the Lifetime Learning Credit are nonrefundable credits. In other words. these credits only reduce your federal income tax liability. You don't get a refund if you don't owe any tax.