Child care costs can really put a dent in a working parent’s budget. But the catch-22 is that most parents have to work to pay all their bills, including the cost of caring for their children, which often means paying for after-school child care costs so parents can continue to work. Savvy parents put their creative budgeting skills in action by finding ways to reduce the costs of after-school child care, but if free (or reduced) payments to a family member or close friend is not an option, the IRS may be able to help with a tax credit.
Child and Dependent Care Credit
As long as you (and your spouse, if you file a joint return) are working or actively seeking a job, you may be able to claim the expense of an after-school program on your federal income tax return as a child and dependent care credit. In fact, before- and after-school care is tax deductible.
To claim this credit, you’ll have to meet IRS guidelines for eligible expenses that you pay for your qualifying child. The amount of your credit is a percentage of these expenses, based on your adjusted gross income. The IRS considers parents as "working" during any months that they are full-time students.
Tax Credit Doesn't Mean Refund
It’s important to note that the child care and dependent tax credit is just that – a credit on your income tax return, which reduces the amount of your taxable income. This is not a tax refund that you’ll receive at the end of the year. And if this credit reduces your total tax liability to zero, any amount of expenses you may have paid above the credit is non-refundable.
Amount of After-School Tax Credits
The IRS caps the total amount of after-school child care expenses that you can claim at $3,000 for one child (or $6,000 for two or more children). After tallying your eligible expenses, you can claim 20 to 35 percent of the costs that do not exceed these caps, depending on your adjusted gross income.
Part II of IRS Form 2441 (Child and Dependent Care Expenses) is the worksheet you’ll use to compute your actual tax credit. (Visit IRS.gov/forms and search for this form by number to download and print it.) Follow the instructions on lines 3 through 11 to determine your tax credit, and enter the amount from line 11 on Schedule 3 (Form 1040), line 49 or Form 1040NR, line 47 to claim your credit.
Qualifying vs. Non-Qualifying Child-Care Expenses
IRS Publication 503 (Child and Dependent Care Expenses) outlines which expenses qualify for the after-school tax credit and which expenses do not qualify.
Costs that do not qualify include:
- Nursery schools, preschools and other programs for children younger than kindergarten age.
- The costs to attend kindergarten or higher grades.
- Costs of food, lodging, entertainment, education and clothing except for some small amounts that may be required for the cost of caring for your child.
Costs that do qualify include:
- The actual cost of an after-school program.
- The costs of after-school care for a qualifying person who keeps your child in your home after school.
- Household services in your home that are provided at least in part for the well-being and protection of your child. Examples of qualifying costs include cooking and cleaning, but they do not include the costs for gardeners or chauffeurs.
Child-Care Tax Credit Eligibility Requirements
IRS Publication 503 also outlines the child care and dependent eligibility requirements for you and your child. For example, your child must be your legal dependent who is under age 13 when the after-school care was provided. An exception is if your child of any age is physically or mentally unable to care for herself.
Victoria Lee Blackstone was formerly with Freddie Mac’s mortgage acquisition department, where she funded multi-million-dollar loan pools for primary lending institutions, worked on a mortgage fraud task force and wrote the convertible ARM section of the company’s policies and procedures manual. Currently, Blackstone is a professional writer with expertise in the fields of mortgage, finance, budgeting and tax. She is the author of more than 2,000 published works for newspapers, magazines, online publications and individual clients.