J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

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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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 ...