Tax Information for Individuals

Everything About Tax

Tax Information for Parents

If you paid someone to care for a child under age 13 or a qualifying spouse or dependent so you could work or look for work, you may be able to reduce your tax by claiming the Child and Dependent Care Credit on your federal income tax return. To qualify, your spouse, children over the age of 13, and other dependents must be physically or mentally incapable of self-care.

The credit is a percentage of the amount of work-related child and dependent care expenses you paid to a care provider. The credit can be up to 35 percent of your qualifying expenses, depending upon your income.

For 2006, you may use up to $3,000 of the expenses paid in a year for one qualifying individual, or $6,000 for two or more qualifying individuals. These dollar limits must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income.

To claim the credit for child and dependent care expenses, you must meet the following conditions:

  • Income You must have earned income from wages, salaries, tips or other taxable employee compensation, or net earnings from self-employment

  • Payee The payments for care cannot be paid to someone you can claim as your dependent on your return or to your child who is under age 19, even if they are not your dependents

  • Filing Status Your filing status must be single, married filing jointly, head of household, or qualifying widow(er) with a dependent child

  • Care The care must have been provided for one or more qualifying persons

  • Home The qualifying person must have lived with you for more than half of 2006

There are some limitations on the amount of credit you can claim. If you received dependent care benefits from your employer, other rules apply.

For more information on the Child and Dependent Care Credit, see Publication 503, Child and Dependent Care Expenses. You may download these free publications on this web site or order them by calling 800-TAX-FORM (800-829-3676).

Education tax credits can help offset the costs of higher education for yourself or a dependent. The Hope Credit and the Lifetime Learning Credit are two education credits available which may benefit you. Because they are credits, rather than deductions, you may be able to subtract them in full dollar for dollar from your federal income tax.
 
The Hope Credit

  • Applies for the first two years of post-secondary education, such as college or vocational school. It does not apply to the third, fourth, or higher years of undergraduate programs, to graduate programs, or to professional-level programs.
  • It can be worth up to $1,650 per eligible student, per year.
  • You're allowed 100% of the first $1,100 of qualified tuition and related fees paid during the tax year, plus 50% of the next $1,100.
  • Each student must be enrolled at least half-time for at least one academic period which began during the year.
  • The student must be free of any federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

The Lifetime Learning Credit

  • Applies to undergraduate, graduate and professional degree courses, including instruction to acquire or improve job skills, regardless of the number of years in the program.
  • If you qualify, your credit equals 20% of the first $10,000 of post-secondary tuition and fees you pay during the year, for a maximum credit of $2,000 per tax return.

You cannot claim both the Hope and Lifetime Learning Credits for the same student in the same year.  To qualify for either credit, you must pay post-secondary tuition and fees for yourself, your spouse or your dependent. The credit may be claimed by the parent or the student, but not by both. Students who are claimed as a dependent cannot claim the credit.

These credits are phased out for Modified Adjusted Gross Income over $45,000 ($90,000 for married filing jointly) and eliminated completely for Modified Adjusted Gross Income of $55,000 or more ($110,000 for married filing jointly). If the taxpayer is married, the credit may be claimed only on a joint return.

For more information, see Publication 970, Tax Benefits for Education, which can be obtained online at this web site or by calling the IRS at 800-TAX-FORM (800-829-3676).