Children are $$$$$$, Therefore the Child Care Tax Credit

Why is There a Child Care Tax Credit?

The IRS has a mission: to collect taxes in a way that’s fair to all, and to help American taxpayers understand their tax obligations so they can pay them and stay within the law.  Nowhere in the official IRS mission statement does it say anything about administering social programs or spreading the wealth or helping a particular segment of the population over others.  So why then does the IRS do so much to help families?  Where is the child care tax credit coming from?

The IRS Does What Congress Tells it to Do

So if  Congress wants to help families by giving them tax breaks, that is what the IRS will do.  There will be things instituted such as the child care tax credit.  Like the child tax credit, which is a  tax credit that gives $1000 discount on your tax bill for every qualifying child you have living in your home, the child care tax credit helps people with children.  That is a true savings help from the IRS.  It was first installed in the country’s tax code in the late 1990s under the Taxpayer Relief Act of 1997.

The child care tax credit was started in 1987 and was part of a tax relief act but started as a deduction in 1954.  So it’s been around for a long time.  What is does is give a tax credit to working families who pay for child care so they can work.  The child care tax credit is worth20 to 35% of the child care expenses up to $3000, for one child.  For two or more children it’s worth up to $6000.  As income goes up, the percentage goes down.  If the family makes $43,000 or more then the child care tax credit will be worth 20% only.  If the family income is below $15,000 then they get the highest percentage: 35%.

Child Care Tax Credit: The Debate

Apparently the tax code is supposed to reflect a taxpayer’s ability to pay taxes.  Should the cost of child care be a consideration in tax law?  Is this what the income tax is for?  Some say the $1000 child care tax credit for each child isn’t enough to offset the cost of raising a child which by the way is estimated to be about $260,000 from birth to age 17.  And some say that 20 to 35% of child care reimbursement doesn’t do enough.  But is it the government’s job to reimburse you for having kids?  That’s the debate.

Some say that having children is a choice of how you spend your money.  It’s like an investment.  Why does the Child tax credit help those who choose to spend their money a certain way and not other ways.  Some would say the IRS also does a lot to help the rich, but that fluctuates from one presidential administration to the next.  There are tax credits and deductions that encourage other social ideas, like saving for retirement.  But doesn’t that help everyone?  Who wants  a bunch of destitute retired persons hanging around?  It’s all up for debate, which is what makes this country what it is, a democracy.

How to Claim the Child Care Tax Credit

Use IRS form 2441 available here on the IRS website.  If you’re using tax prep software, answer “yes” to the question did you pay for child care this year? and the program will guide you through claiming the credit.