Is Day Care Tax Deductible?

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If you pay for day care, you may be eligible to claim the Child and Dependent Care Credit.

What is the Child and Dependent Care Credit?

The Child and Dependent Care Credit is a tax credit that can offset the cost of child care. It’s based on both your income and the amount you spent on qualifying child care.

The Child and Dependent Care Credit is a separate tax credit from the Child Tax Credit. The Child Tax Credit is based solely on your income and having a qualifying child.

In order to receive this tax credit, you must have earned income. Earned income means wages from a job, self-employment income, or other income from work. It generally does not include investments.

How much is the Child and Dependent Care Credit?

The Child and Dependent Care Credit covers a maximum of $3,000 in child care expenses if you have on qualifying child and $6,000 if you have multiple qualifying children. It’s not $3,000 per child, so the limit is $6,000 whether you have 2, 3, 4, or more qualifying children.

The credit is for a maximum of 35% of your qualifying child care costs. So if your expenses are equal to or greater than the maximum, you can receive a tax credit of up to $1,050 for one child and $2,100 (total, not each) for multiple children.

To receive the maximum 35%, your Adjusted Gross Income generally needs to be $15,000 or less. The credit reduces by 1% for every $2,000 you make above $15,000 down to a minimum of 20%.

So if your AGI is $45,000 or more, your credit is 20% of your qualifying expenses (up to the $3,000 or $6,000 limit). So the maximum you can receive with the 20% credit is either $600 or $1,200.

What is a qualifying child?

A qualifying child is generally a child under the age of 13 that you can claim as a dependent.

Note: For divorced parents, the noncustodial parent may not be able to claim the Child and Dependent Care credit even if the noncustodial parent can properly claim the child as a dependent.

What counts as qualifying care?

Most forms of child care qualify except for care provided by your spouse, dependent, or child under age 19. Qualifying care can include day care, babysitters, nannies, neighbors, and other relatives.

The care generally needs to be while you work or look for work. Overnight care generally doesn’t qualify. School and tutoring expenses also generally don’t qualify.

Day camps for sports, church groups, or other activities can qualify if the main purpose of sending your child is to provide care while you work or look for work.

If you receive free or subsidized care, you can generally only take a credit for the expenses that you pay using your own funds. For example, if a state program pays $400 of your $500 monthly costs, you can claim $100 per month in expenses. Tax-free care provided by your employer works similarly.

Is the Child and Dependent Care Credit refundable?

The Child and Dependent Care Credit is typically not refundable. This means that it can reduce your taxes, but you won’t receive a refund if the credit is worth more than the taxes you owe.

In 2021, the Child and Dependent Care Credit was refundable in certain situations as part of the pandemic relief package.

Is day care an itemized deduction?

Day care is generally not an itemized deduction that you can include on your Schedule A. There are separate forms for claiming any child tax credits you’re eligible for.

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