If your child is enrolled in private preschool or a for-profit or non-profit daycare center, that can add up to a serious expense. Luckily, there is often some tax relief available to help you cover the costs. If you're a custodial parent or other eligible primary caretaker for a pre-k child, the IRS offers you a tax break in the form of the child and dependent care credit.
The federal child and dependent care tax credit can help you cover the costs of daycare, pre-kindergarten or similar programs for a child 13 or younger.
Understanding the Preschool Tax Credit
You can get what's called a child and dependent care tax credit on your federal taxes to pay for childcare expenses necessary for you or your spouse to work or search for work. The benefits apply for care for children under 13 when receiving care, or for a spouse or dependent who lives with you more than half a year and is physically or mentally unable to care for himself or herself.
You can generally get up to $3,000 for a single dependent, or a total of $6,000 for two or more dependents, though the amount of the credit can't exceed the smaller of your earned income or your spouse's. Since it is a tax credit, when you file with the Internal Revenue Service, it will decrease your tax liability dollar for dollar.
Filing Status and Income Criteria
The IRS has certain filing and income requirements for being able to claim the child and dependent care tax credit. You can only claim the credit if your tax filing status is single, head of house, qualifying widow(er) with a qualifying child or married filing jointly. If you are legally married but you file a separate tax return from your spouse, you cannot claim this credit. Your income must be "earned" income (such as wages, salary or tips) and not "unearned" income (such as investment income, including dividends and interest)
Claiming the Credit
Claim your credit on Line 12a of Form 1040 (or on Line 49 of Form 1040NR if you're a U.S. nonresident alien).
You'll generally need to provide the name, address and taxpayer identification number, meaning either a Social Security number or an IRS employer identification number, of any childcare providers whose services you're claiming through the credit. If you can't get this information, you might still be eligible to file for the credit if you can demonstrate you made an effort to do so.
Restrictions on the Credit
If you have received childcare compensation from your employer, you should deduct that from your total expenses in computing the credit as directed by Form 2441.
The care provider can't be your spouse, the parent of your child, someone you or your spouse could claim as a dependent on your tax returns or another one of your children who is under the age of 19. If you have an in-home caretaker rather than using a daycare service or a preschool, you may need to claim that person as a household employee and pay employment taxes.
Details on the child and dependent care tax credit are available in the IRS's Publication 503. Many states also offer additional child care credits that you might be eligible for. It's likely worth the time to research your state's potential tax breaks as well.
- IRS: Topic Number 602 - Child and Dependent Care Credit
- IRS: Publication 503 (2018), Child and Dependent Care Expenses
- IRS: Form 2441: Child and Dependent Care Expenses
- Tax Credits for Workers and Their Families: State Tax Credits
- IRS: 2018 Form 1040
- IRS: 2018 Form 1040NR
- H&R Block: Deducting Summer Camps and Daycare with the Child and Dependent Care Credit
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.