Taking care of kids or aging parents can rack up huge expenses. Did you know that some of those expenses are deductible? If you pay someone to take care of your kids or an elderly relative while you're at work, you can reduce your tax liability and increase your refund through the Child and Dependent Care Credit.
The Child and Dependent Care Credit is important, because like the Child Tax Credit, it is subtracted from your final tax bill dollar for dollar, not deducted from your taxable income. The trick is figuring out if you qualify for this credit and how much it's worth. To qualify for the credit, you must pay for someone to take care of your dependent child (younger than 13) so that you can work (or look for work). You also can claim this credit if the child is older than 13 and mentally or physically impaired (adults who fall in these categories can be claimed also.)
There's a limit of how much of those child or dependent care expenses you can claim. The IRS says that you can claim up to $3,000 in expenses for one qualifying individual or $6,000 for two or more individuals. The actual amount of the credit is only a percentage of those costs, between 20 and 35 percent based on your annual income [source: IRS]. So if you claim the maximum of $6,000 to send two kids to daycare and you make $35,000 a year, you'll get a credit worth $1,440 (24 percent of $6,000).