If you have paid for the care of your dependent(s) in the past and anticipate that dependent care will likely continue through 2020, then you will want to think about a specific work place benefit that may be available through your employer. Dependent Care Benefits, located on your W-2, Box 10, allows you to exclude up to $5,000 ($2,500 married filing separate) of your earned income for qualified care and expenses. Dependent Care Benefits through your employer can save Federal, State (if applicable), Social Security and Medicare tax which could make this a better option than the dependent care deduction on your personal tax return.
Know The Qualifications:
Hiring assistance through an individual or organization to care for a child or disabled family member is a reality for most working families. Thankfully, W2 employees may have an option to combat increase in pricing and costs of child care through their employers. Qualifications for dependent care include the following:
- A child under the age of 13, of whom you are authorized to claim as a dependent on your tax return
- A spouse or family member that is physically or mentally disabled
- The care is acquired so that you may be gainfully employed
- Dependent regularly spends 8 hours per day in your household, for those services which take place out of the home
- Outside organizations hired complies with all applicable state and local laws and regulations
- The fair market value of the dependent care expenses are provided for the applicable year
- You must report to the IRS on your 1040 tax return the name, address and social security number (or other tax payer identification number) of any dependent care service provider
Come Tax Time:
Taking advantage of dependent care benefits provided through your employer will allow a significant tax savings over the course of the year for your family. Reach out to your Human Resources Department or employer to determine if your benefit plan qualifies.
If you have any questions or concerns relative to the most advantageous tax strategy for your family, please contact us HERE or give us a call at 248-934-0550. We would be honored to help.