How Are Child Care Expenses Verified By The Irs?

The IRS uses broad guidelines to audit a daycare provider, including requesting copies of their income and expenses records. They attempt to reconstruct income through various methods, including government records and contracts with the Department of Human Services Records.

For taxpayers who are paying someone to take care of their children or another member of the household while they work, they may qualify for child and dependent care credit. IRS Publication 503 outlines eligibility criteria for taxpayers seeking the credit, including qualified child daycare and household employees.

For 2021, the Child and Dependent Care Credit is a refundable credit for taxpayers and their spouses (if married filing jointly). It is a tax break specifically for working people to offset the costs associated with caring for a child or dependent. To claim the credit, taxpayers must complete Form 2441, Child and Dependent Care Expenses, and attach it to Form 1040, U.S Individual Income Tax Return, Form 1040-SR.

The IRS verifies a provider’s income by evaluating contracts, sign-in sheets, child attendance records, bank deposit records, and other income. To claim the credit, taxpayers must file their Form 1040 federal income tax return using Form 2441.

To claim the credit, taxpayers must complete Form 2441, a two-page document that reports child and dependent care expenses as part of a federal income tax return. This credit “gives back” a portion of the money spent on care, potentially reducing their tax bill by hundreds or even thousands of dollars.