State Representative
Richard Mulder

ST. PAUL -- Families with dependent care expenses may be eligible for federal and state tax credits, according to Representative Doc Mulder (R-Ivanhoe). "Often, these programs are under-utilized because people aren't aware they are available," said Mulder.

Minnesota and the federal government provide income tax credits for dependent care expenses. The federal credit equals 30 percent of qualifying dependent care expenses for families with incomes of $10,000 or less. The credit percentage phases down to 20 percent for families with incomes over $28,000, but all families qualify for the federal credit, regardless of income.

The Minnesota credit begins to phase out when income reaches $18,050 and is not available to families with incomes over $31,700. Both state and federal credits provide up to $720 for one dependent and up to $1,440 for two or more.

This program is a result of government's recognition that dependent care is often a cost of being employed. Just as businesses can deduct certain expenses as necessary, taxpayers may claim both federal and state dependent care credits that partially offset the cost of dependent care. Dependents are qualified as children under the age of 13, disabled spouses, or other adult dependents such as the physically or mentally disabled.

Both federal and state credits are applied to tax obligations; the state credit is refundable which means that if your credit allowance for expenses exceeds your state tax liability, you will receive a refund of the difference. The federal credit can only be applied to your federal tax liability with no refund for any excesses.

Several conditions must be met regarding eligibility. The taxpayer must maintain a household that includes a qualified individual; the expenses must be incurred to enable the taxpayer to be gainfully employed; and the expenses must relate to the care of the qualified individual. For a

-00-

married couple, both spouses generally must work; however a parent who is a full-time student is considered to be working.

Two types of expenses qualify: (1) direct care expenses, such as day care or a nanny for a qualified individual; or (2) household expenses, such as a maid or cleaning service, when performed in conjunction with dependent care. Expenses may not exceed the earned income of the lower earning spouse.

Beginning in 1994 the Minnesota dependent care credit includes a special young-child credit. This allows married joint filers with a child under age one to claim a credit, regardless of whether they incurred dependent care expenses.

In order to receive the federal and state credits, taxpayers simply need to complete the appropriate tax forms. At the federal level, taxpayers must file either form 1040 (the "long" form) and Schedule 2441 OR form 1040A (the "short" form) and Schedule 2. They may not file form 1040EZ if they wish to claim the credit.

At the state level, taxpayers must file form M-1 and also complete Schedule M-1CD to claim the Minnesota dependent care credit. They also must attach a copy of either federal Schedule 2441 or Schedule 2 to their state tax return.

Both federal and state forms will require information regarding amounts paid and the care giver, so accurate record-keeping is important. State and federal tax forms are available online at http://www.state.mn.us/ebranch/mdor/00forms.html or, in limited supply, can still be found at local public libraries. In order to reduce government spending, tax forms will not be available in post offices unless a community does not have a library to serve as a distribution point. Your professional tax preparer will also have the necessary forms.

If you have further questions about dependent care tax credits, contact the Minnesota Department of Revenue at their tax help line: (651) 296-3781 or 1 (800) 652-9094.

"Making it easier for our families to provide quality care to their children, disabled spouse or other dependent is important," stated Representative Mulder. "I hope families will take the time to look into these programs to see how they might help."

Representative Mulder can be reached at 515 State Office Building, 100 Constitution Avenue, St. Paul, MN 55155 or rep.richard.mulder@house.leg.mn.us or call 1-800-474-3425 or (651)296-4336.

Representative Richard "Doc" Mulder is in his fourth term serving the citizens of District 21B. Mulder is the Vice Chair of the Health Human Services Finance committee and is a member of the Health & Human Services Policy, Family & Early Childhood Education Finance, and Ways & Means committees. District 21B includes portions of Lincoln, Lyon, Murray, Nobles, Pipestone and Rock Counties.

-30-