Final answer:
To qualify for the Child and Dependent Care Credit, taxpayers must have earned income and paid for childcare or care of another dependent while working or seeking work. The credit is designed to reduce the financial burden of care expenses. Understanding this credit alongside the Earned Income Tax Credit (EITC), as highlighted by Caroline Krafft, is essential due to their intersecting impact on low- to moderate-income individuals.
Step-by-step explanation:
The Child and Dependent Care Credit is a federal tax credit that helps offset the cost of childcare for working individuals or couples. To qualify for this credit, taxpayers must have earned income, and they must have paid for the care of a qualifying individual so they could work or look for work. A qualifying individual for the Child and Dependent Care Credit can be a child under the age of 13 whom the taxpayer may claim as a dependent, or a spouse or another dependent who is physically or mentally incapable of self-care and lives with the taxpayer more than half the year.
Regarding the Earned Income Tax Credit (EITC), whilst a different credit, it is relevant to understand its function in tandem with the Child and Dependent Care Credit due to its importance for low- to moderate-income workers. As highlighted by Caroline Krafft and referencing data from the Tax Policy Center, in 2013, a single-parent family with two children could benefit from the steadily increasing tax credit up to an income level of $17,530, beyond which the credit starts to phase out until it is completely phased out at the income level of $46,227.
It is important for individuals or couples that are potentially eligible for the Child and Dependent Care Credit to carefully consider their income level and the EITC implications. Caroline Krafft notes the effectiveness of the EITC in alleviating poverty, particularly for single mothers, due to this thoughtful phasing out of the tax credit, thereby avoiding a harsh poverty trap.