Is Daycare Tax Deductible? What You Need to Know
Tax season is officially here (*cue collective groan*). And if you are a cash-strapped parent who wants to maximize your refund check — or at least minimize the amount you owe — then you might be wondering if your daycare costs are tax deductible.
After all, the average American spends about $321 a week on daycare costs in 2024, according to the 2024 Cost of Care report — and that’s per child. So getting any of that money back would be very beneficial indeed!
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Keep reading for everything you need to know below!
There Is a Tax Credit for Daycare
Good news! Eligible daycare costs are covered under the Child and Dependent Care Credit when you file your taxes. The credit allows for 20-35% of qualified expenses, dependent on your adjusted gross income.
The maximum amount of qualified expenses for the credit is $3,000 for one child and $6,000 for 2 or more children, and the amount you can claim depends on your income, per H&R Block.
As a quick refresh for the non-tax savvy, a credit is an amount of money that you subtract from what you owe (or that increase your refund). A deduction, on the other hand, is an amount you subtract from your income when you file. Typically, lowering your income lowers the amount of taxes you owe.
Who Is Eligible?
If your child (or other dependent) under the age of 13 requires care during the day so you and your spouse, if filing jointly, can work or look for work, then you may qualify for this tax credit. It also applies to a spouse or dependent of any age who is incapable of self-care and who lives with you for more than half of the year.
(NOTE: the primary custodial parent may be able to claim this credit if the couple is legally separated, not living together, or divorced, per NerdWallet.)
In order to claim this credit, you must have:
Paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work.
You (or your spouse if filing a joint return) lived in the United States for more than half of the year. However, special rules apply to military personnel stationed outside of the United States.
You and your spouse must have earned income for the tax year (exceptions apply if one spouse is disabled or a full-time student for at least five months of the year).
Check for eligibility HERE.
Examples of Qualifying Expenses
More than just daycare that qualifies for this tax credit! According to Intuit TurboTax, fees paid to the following places/services may be eligible:
Childcare provided by a babysitter or licensed dependent care center.
The cost of a cook, housekeeper, maid, or cleaning person who provides care for the child or dependent.
Day camp or summer camp fees, even for camps centered around a sport or activity, qualify if the camp was selected to provide care while the parent or parents were at work. However, overnight camps do not qualify.
Costs related to before- and after-school care for children under 13.
Costs related to a nurse, home care provider, or other care provider for a disabled dependent.
(Expenses related to schooling, tutoring, or overnight camps are not qualifying expenses.)
What Do You Need?
Tax form 2441 covers the Child and Dependent Care Expenses, where you can fill out the tax credit and report any dependent care benefits (such as pre-tax contributions you made under a dependent care FSA). Here’s what you will need to fill it out:
The name of each person or organization who provided care for your child and their address. If you paid an individual (like a babysitter), you must also have their social security number, individual taxpayer identification number, or employer identification number. Note: nannies are commonly listed under “household employees,” and will need Schedule H (form 1040) filled out instead.
The amounts you paid to each qualified provider (including after-school centers, daycare, and some summer camps).
The name and social security number of each qualified dependent who received care.
Learn more about the Child and Dependent Care Credit HERE.
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