How to Claim the SC Parental Refundable Credit
This guide clarifies the SC Parental Refundable Credit, detailing its direct link to the federal credit and how it can reduce your state tax liability.
South Carolina provides the Child and Dependent Care Credit, a nonrefundable tax benefit aimed at helping families manage care costs. A nonrefundable credit reduces your state tax liability down to zero but does not provide a refund for any excess amount. This credit directly lowers the South Carolina income tax a qualifying family owes. The purpose is to provide financial relief to working parents and guardians who pay for care services to work or look for work, supplementing a similar credit offered at the federal level.
Eligibility Requirements for the Credit
To qualify for South Carolina’s child and dependent care credit, you must first meet all requirements for the federal credit of the same name. This means you must have incurred care expenses for a qualifying individual to allow you and your spouse, if filing jointly, to work or actively seek employment. A qualifying individual is a dependent child under the age of 13, or a spouse or other dependent who is physically or mentally incapable of self-care and lives with you for more than half the year.
Residency status is a factor in determining eligibility. The credit is available to full-year South Carolina residents. Part-year residents and nonresidents may be eligible if their home state offers a similar credit to nonresidents. This reciprocity rule is a consideration for those who have moved during the tax year or live in another state while working in South Carolina.
Your tax filing status also impacts eligibility. You can claim the credit if filing as Single, Head of Household, or Married Filing Jointly. Taxpayers who use the Married Filing Separately status are not permitted to claim the credit.
Calculating the Credit Amount
The South Carolina credit calculation is directly linked to your federal return. The state credit is seven percent of your federally qualifying child and dependent care expenses, which are the work-related expenses reported on federal Form 2441. The South Carolina credit is based on this expense amount, not the final calculated amount of the federal credit.
The amount of work-related expenses you can use for the calculation is capped by federal rules. You may use up to $3,000 in expenses for one qualifying individual or up to $6,000 for two or more. Because the South Carolina credit is based on these figures, the maximum state credit is $210 (seven percent of $3,000) for one individual. For a taxpayer with two or more qualifying individuals, the maximum credit is $420 (seven percent of $6,000).
To illustrate, consider a South Carolina resident with one child who incurred $4,000 in work-related childcare expenses. On their federal return, they can only use $3,000 of those expenses due to the federal cap. For their South Carolina return, they would multiply that same $3,000 expense amount by seven percent, resulting in a state tax credit of $210.
As a nonrefundable credit, this can only reduce your South Carolina income tax liability to zero. For example, if your state tax liability is $500 and you have a credit of $210, your final tax is reduced to $290. If your tax liability was only $150, the $210 credit would reduce your liability to $0, but you would not receive the remaining $60 as a refund.
How to Claim the Credit on Your Tax Return
The process for claiming the credit is integrated into the main state income tax return and does not require a separate South Carolina form. The starting point is your completed federal Form 2441. This federal form documents your qualifying expenses, and the information is necessary for your state filing.
The final step is to report the calculated credit on the appropriate line of your South Carolina Individual Income Tax Return, Form SC1040. You will enter the amount on the line designated for the credit within the nonrefundable credits section. It is important to use the correct year’s tax form, as line numbers can change annually.
You should retain a copy of your federal Form 2441 with your tax records. Although you do not need to mail the federal form with your state return, it serves as the necessary documentation to support your claim. The state revenue agency may require this documentation in the event of a review or audit.