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

25.8 Expenses Qualifying for the Dependent Care Credit

If you do not receive tax-free dependent care benefits from an employer’s plan, you may take into account up to $3,000 of the following types of expenses paid in 2012 when figuring the credit for one dependent, or up to $6,000 for two or more dependents. If you receive employer-financed dependent care, tax-free reimbursements reduce the $3,000 or $6,000 base.

1. Costs of caring for your qualifying child under age 13, incapacitated spouse, or incapacitated dependent (of any age) in your home (25.7). If you pay FICA or FUTA taxes on your housekeeper’s wages (38.3), you may include your share of the tax (employer) as part of the wages when entering your qualifying expenses. Also include your housekeeper’s share of FICA tax if you pay it. Note that these taxes may more than offset your allowable credit.

The manner of care need not be the least expensive alternative. For example, where a grandparent resides with you and may provide adequate care for your child to enable you to work, the cost of hiring someone to care for the child is still eligible for the credit.

2. Ordinary domestic services in your home, such as laundry, cleaning, and cooking (but not payments to a gardener or chauffeur) that are partly for the care of the qualifying person. Expenses for the dependent’s food, clothing, or entertainment do not qualify. Food costs for a housekeeper who eats in your home may be added to qualifying expenses. Extra expenses for ...