25.6 Earned Income Test for Dependent Care Credit

To claim the credit, you must earn wage, salary, or self-employment income figured without regard to community property laws. Expenses for dependent care incurred while looking for a job may be included. However, you must have earnings during the year to claim the credit.

Earned income rule for married couples.

Generally, both spouses must work at least part time, unless one is incapable of self-care or is a full-time student. If either you or your spouse earns less than the maximum $3,000 or $6,000 credit base (25.5), the base is limited to the smaller income.

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image Filing Tip
No Credit if Neither Spouse Works
If both husband and wife are full-time students and neither works, they may not claim the credit for dependent care costs. While one student-spouse is considered to have earned income of $250 ($500 if more than one qualified person is cared for) each month, the other spouse’s earned income is zero. Care costs eligible for the credit are limited to the lesser amount of earned income, which in this case is zero.
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EXAMPLE
John and Mary are married. In 2012, John earns $5,300. Mary earns $33,000. They incur care costs of $6,200 for their two children, ages 5 and 7. Their adjusted gross income including interest earnings is $38,575; their credit percentage is 23%. The maximum $6,000 credit base (for two or more dependents) is limited to John’s lower income of $5,300. They may claim a credit of $1,219 ($5,300 × 23%).

Spouses who are students or disabled.

An incapacitated spouse or a spouse who is a full-time student is considered to have earned income of $250 a month if expenses are incurred for one dependent, or $500 a month for two or more dependents.

A full-time student is one who attends school full time during each of five calendar months during the year.


EXAMPLE
Same facts as in the Example above, except John was a full-time student for nine months and earned no income for the year. The credit base is limited to $4,500 ($500 × 9).

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