Can You Deduct Child Care Expenses?

For parents who are responsible for childcare, handling the cost of bringing up children can be challenging.

child care tax credit

That’s why the IRS allows you to deduct certain child or dependent care expenses on your tax return.

Although it’s primarily aimed at working parents and guardians, the unemployed and full-time students may also qualify for this tax credit.

If you paid a daycare center, babysitter, summer camp, or other care provider to care for a qualifying child under age 13, you can claim a tax credit of:

  • 50% of all qualifying expenses up to a maximum credit of $3,000 for one child or dependent.
  • The credit also covers up to $6,000 for two or more children.

The credit is calculated based on your income and a percentage of expenses that you incur for the care of qualifying persons to enable you to go to work, look for work, or attend school.

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Why is the Child and Dependent Care Credit So Important?

The reason why this credit exists is to help working guardians and parents handle the costs of raising a child or supporting a disabled dependent.

The amount of the credit will vary depending on what your income is. It’s also based on the services purchased that enable the parent or guardian to work or look for work.

The Child and Dependent Care Credit reduces the amount you pay to the government on your tax return. This can increase your refund and enable you to use your money on other expenses.

Who Qualifies for the Child and Dependent Care Tax Credit?

There is a range of criteria that must be fulfilled to become eligible to claim this tax credit.

You must meet the requirements detailed below to claim the Child and Dependent Care Credit on this year’s income tax return:

  • You must have earned income. For example, if you’re married but filing jointly, then either you or your spouse must have a form of earned income.
  • You must be the parent or the primary caregiver of the dependent claimed.
  • The services must have been purchased to either work or search for employment.
  • A qualifying child under age 13. The child or dependent must either be disabled or under the age of 13 to be claimed as a dependent for this tax credit.
  • The provider of any childcare can’t be a dependent, your spouse, or a parent of the child, even if you’re paying them a salary.

Which Expenses Qualify for the Child and Dependent Care Credit?

The only purpose of this tax credit is to claim expenses back on the cost of daycare. However, the IRS stipulates that there is a range of other expenses that can be claimed back through this tax credit.

Some of the other expenses include:

  • Babysitting costs or the cost of a care center. The care center in question must be licensed.
  • The cost of home help, such as a cook, housekeeper, cleaner, or maid, if they’re involved in providing care to a qualifying child or dependent.
  • Day and summer camp fees. This also counts even if the camp is centered around a specific activity, such as a sport. Overnight camps, however, don’t qualify.
  • Costs of childcare before and after school.
  • Costs of nurses, home care, and other care services for disabled dependents.

Educational expenses, such as private school fees and private tutoring, aren’t eligible expenses.

Exceptions to the Rules

Every family has a different situation. For this reason, the IRS has several exceptions to the rules outlined above. The idea behind these exceptions is to increase the number of eligible families for this tax break.

  • If parents are separated or divorced, the parent who should claim the credit is the one whom the child spends most of the year with. This applies even if both parents have the right to claim the child as a dependent on their tax returns.
  • You may claim this credit if you’re caring for a disabled adult, even if you can’t claim them as a dependent on your tax return due to your adjusted gross income being too high. This is also valid if someone else is claiming them as a dependent.
  • You don’t need to have an earned income if your spouse is permanently and totally disabled.
  • The IRS will consider your spouse to have earned income if they attended college as a full-time student for at least five months of the previous tax year.

How to Claim the Child Care Tax Credit

Online tax software makes claiming the child care tax credit easy for several reasons. Here are some of the key reasons why online tax software simplifies the tax filing process:

  • User-Friendly Interface: Online tax software is designed with a user-friendly interface that guides users through the tax preparation process step by step. It provides clear instructions and prompts, making it easy for individuals to enter their financial information accurately.
  • Automated Calculations: Tax software automatically performs complex tax calculations, reducing the risk of mathematical errors. This ensures that users calculate their tax liability and refunds correctly.
  • We recommend using online tax filing software because all you need to do is enter some necessary information.

Then you’ll be able to find out if you have any qualifying dependents and how you can claim them.