You may be familiar with the so-called “child-care credit.” If you pay someone to watch your kids so you and your spouse can work or go to school, a tax credit (a direct tax reduction) may be available. As you prepare your tax return for last year, don’t forget that this credit is really a “dependent-care credit” that can apply to a parent as well. To qualify, you must have hired someone to take care of a parent who is physically or mentally incapable of caring for himself so that you can go to work.
If you meet this test you can take a 20% credit for up to $2,400 worth of expenses, or $480 per year in tax savings. If you hire someone to take care of two elderly people (subject to the conditions described above), the 20% credit extends to $4,800 worth of expenses, for a maximum annual tax savings of $960. What’s more, you can claim this credit even if your parent doesn’t qualify for a dependency exemption. If you provided over half of the parent’s support last year you can claim the credit, regardless of your parent’s income.