Can Childcare Expenses Be Deducted on a Tax Return?
Parents can face a real financial burden when they must pay for child care so they can work. Strictly speaking, you cannot deduct child care expenses on a tax return. However, you may qualify for the child and dependent care credit, rather than a deduction. This tax credit can be a big help by offsetting some of the cost of child care.
Tip
While you can't deduct child care expenses on your tax return, you can take advantage of the child care tax credit instead.
The Child Care Tax Credit
The child and dependent care credit may be claimed if you incur child care expenses in order to work or look for a job. If you are married, both spouses must have earned income, although a spouse who is a full-time student for at least five months of the year also qualifies. The work requirement is waived if one spouse is incapacitated and incapable of self-care. The credit allows you to subtract a percentage of your child care expenses from the tax you owe. The child and dependent care credit may also be claimed for a dependent who is physically or mentally incapable of self-care.
For you to claim the child and dependent care credit, the child must be under age 13 at the time the expenses are paid and must be a qualifying child under Internal Revenue Service rules. Stepchildren or adopted children, along with siblings and foster children, can qualify as well as your biological children. Descendants of any of these may qualify. You must be able to claim the child as a dependent and file an itemized return. This must be a joint return if you are married. You cannot claim child care expenses that your employer pays and that are excluded from your adjusted gross income.
Limits and Exclusions
The IRS sets dollar limits on the child care expenses you can claim when calculating the amount of your credit. The maximum dollar amount if you have one child is $3,000. If you have two or more children, the daycare tax credit limit is $6,000. The percentage of the expenses you claim that you can take as the credit depends on your adjusted gross income. In addition, the dollar limit is reduced by the amount of any child care assistance you receive from your employer.
The maximum proportion of the dollar amount you claim that can be taken as the child care credit is 35 percent. This means the credit may be up to $1,050 if you can claim $3,000 or $2,100 if you have more than one child and can claim $6,000 in child care expenses. You can get the full 35 percent if your adjusted gross income is less than $15,000. The percentage is gradually reduced as your AGI increases. When your AGI is $43,000 or more, the percentage is 20 percent.
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Based in Atlanta, Georgia, W D Adkins has been writing professionally since 2008. He writes about business, personal finance and careers. Adkins holds master's degrees in history and sociology from Georgia State University. He became a member of the Society of Professional Journalists in 2009.