Verifying Child Care Expenses for the IRS: A Comprehensive Guide

Claiming the child and dependent care credit can provide significant tax savings for working families. However, it is crucial to maintain accurate records of your child care expenses to avoid potential issues during an IRS audit. This article provides a comprehensive guide on how to verify child care expenses, ensuring that you have the necessary documentation to support your claim.

Why Verification is Important

The IRS requires taxpayers to substantiate their child care expenses to prevent fraudulent claims. Without proper documentation, the IRS may disallow the credit, resulting in additional taxes and penalties.

Acceptable Forms of Verification

The following documents are generally accepted as proof of child care expenses:

• Receipts: Detailed receipts from the care provider, including the date, amount, and purpose of the expense.
• Canceled checks: Canceled checks made out to the care provider, showing the date and amount of the payment.
• Credit card statements: Credit card statements that itemize child care expenses, including the date, amount, and payee.
• Bank statements: Bank statements that show electronic payments or deposits to the care provider.
• Form W-10: Form W-10, Dependent Care Provider’s Identification and Certification, completed by the care provider and provided to you.

Required Information

When gathering documentation, ensure that the following information is included:

• Care provider’s name and address: The full name and address of the individual or organization providing the care.
• Care provider’s taxpayer identification number (TIN): The Social Security number (SSN) or Employer Identification Number (EIN) of the care provider.
• Date of payment: The date the payment was made to the care provider.
• Amount of payment: The total amount paid for child care services.
• Purpose of expense: A brief description of the services provided, such as daycare, babysitting, or after-school care.

Special Considerations for Household Employees

If you employ a nanny or other household employee to provide child care, you must comply with additional reporting requirements. You are responsible for withholding and paying Social Security and Medicare taxes, as well as federal unemployment tax. You must also provide the employee with a Form W-2, Wage and Tax Statement.

Recordkeeping Best Practices

• Keep all receipts, canceled checks, and other documentation for at least three years from the date you file your tax return.
• Organize your records by year and type of expense.
• Make copies of important documents and store them separately from the originals.
• Consider using a tax software program or online service that can help you track and verify your child care expenses.

Verifying child care expenses is essential for claiming the child and dependent care credit. By maintaining accurate and complete documentation, you can ensure that you have the necessary proof to support your claim in the event of an IRS audit. Remember to keep your records organized and accessible for at least three years after filing your tax return.