Child and dependent care tax credit

A tax credit is way better than a tax deduction because it reduces your tax bill dollar for dollar. Missing one might turn out to be more painful than missing a deduction, as it reduces the amount of income that’s subject to tax.

However, it can be easy to overlook the Child and Dependent Care Credit when you pay your child care bills through a reimbursement account at work. As much as $6,000 in care expenses can easily qualify for a credit, even if the $5,000 from a tax-favored account can’t be used.

BUT, if you decide to run the maximum $5,000 through a proper plan at work, but then spend more for work-related child care, then you can claim the credit for an extra $1,000, which will cut your tax bill by a minimum of $200, using the minimum 20 percent of the expenses.