If you put your child in daycare, you may be able to save hundreds of dollars on taxes. It doesn't matter whether it's church preschool daycare, a for-profit business or a nanny, provided it meets the IRS requirements for the Child Care Tax Credit. Paying your spouse or a toddler's teenage sister for babysitting, for instance, wouldn't make the cut with the IRS.
Putting your child in daycare for a few hours of peace and quiet isn't going to save you on your taxes. You can only claim the tax credit if you have to put your child in daycare so that you can work or look for a job. If you're married, that requirement applies to your spouse, too. The IRS gives you a little flexibility with this rule. If, for example, you work nights and you put your child in daycare while you sleep, that would qualify.
The tax credit is based on a percentage of your child-care expenses. As of 2013, if your adjusted gross income is $15,000 or less, the credit is 35 percent of expenses; above $43,000, it's 20 percent. With one child, you apply the percentage to either your total day-care bill, your earned income or $3,000 -- $6,000 for two or more kids -- whichever number is smallest. If, say, you have $12,000 AGI and pay $5,000 to put one child in church daycare, your deduction would be 35 percent of $3,000.
You can't qualify for the credit unless the child in preschool is your dependent. A stepchild, foster child or adopted child can qualify you, as do grandchildren and younger siblings. If you're divorced and the custodial parent, you may be able to qualify even if your ex claims the child as a dependent. A toddler you care for who isn't your dependent -- your partner's son, for instance -- doesn't entitle you to the tax credit.
To take the credit, report it on IRS Form 2441 and attach it to your Form 1040, 1040A or 1040NR. You can't take the credit on a 1040EZ. The credit comes right off your tax bill rather than your taxable income, but you can't get a refund -- the most you can do is zero out your tax bill. You need to keep the church daycare's name, address and employer identification number in your records.
A graduate of Oberlin College, Fraser Sherman began writing in 1981. Since then he's researched and written newspaper and magazine stories on city government, court cases, business, real estate and finance, the uses of new technologies and film history. Sherman has worked for more than a decade as a newspaper reporter, and his magazine articles have been published in "Newsweek," "Air & Space," "Backpacker" and "Boys' Life." Sherman is also the author of three film reference books, with a fourth currently under way.