A household can use Form T778 to claim childcare expenses. It’s a valuable resource for many households like yours, especially during these trying times in the global economy as claiming childcare expenses can help lower your overall tax liability.
This article will discuss the highlights of childcare costs and their implications on your taxes. Take this as an opportunity to ensure you maximize your deductions and other related benefits in order to use the extra money saved towards your children’s future.
Who can claim Child Care Expenses?
You can claim childcare expenses only if you are a parent with a lower net taxable income as compared to your partner. If you are separated and hold custody of your children, sometimes each parent may deduct a portion of the childcare costs against income. But if a doctor certifies you as unfit to care for your child due to a physical or mental disability, only the higher income spouse can claim the deductions.
Take note that your children are only entitled to this deduction if they are under the care of a parent with a net income less than or equal to the federal basic personal amount. This rate changes every year, so it’s best to check it first before filling. It used to be at $12,298-$13,229 in 2020, but it’s now at $12,421-$13,808. Your children must also be under 16 years of age at the beginning of the taxable year, but you can claim exemptions if they are physically or mentally disabled.
If you require further clarifications, it’s best to either read the Revised form T778 on Child Care Expenses or contact an accounting service provider who is well-versed in personal tax, like our team.
What is earned income for Child Care Expense?
Earned income generally consists of employment income, self-employment income, the taxable portion of scholarships, bursaries and similar awards, disability benefits received from the Canada Pension Plan or the Quebec Pension Plan.
What is considered an Allowable Child Care Expense?
Allowable childcare expenses are costs related to caring for an eligible child that a parent incurs, while acquiring employment income or fulfilling business obligations. You can also claim it if you are currently taking a certified program under an educational institution for at least three consecutive weeks or completing research for a grant received. For instance, if your child goes to boarding school, you can claim childcare expenses, if it’s within the allowable limit.
What Are the Annual Limits for Child Care Expenses?
The claim for childcare expenses cannot exceed two-thirds of your earned income for the year.
If the costs go beyond the allowable limit, there are some costs available through the child fitness tax credit. All allowable expenses must first be processed as childcare costs, and then the remaining balance goes through the fitness credit. Only Manitoba and Yukon still have a fitness tax credit. The federal children’s fitness tax credit has been eliminated.
Childcare expenses can have a large impact on your personal tax returns, especially since it directly helps with childcare costs. Now that you have a better understanding of its implications and guidelines, you just need to look for accounting services near you to make sure you are taking full advantage of any deductions and credits that are available to you. Start working on your tax filing today.
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