Can You Write-Off Daycare Expenses on Taxes?

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Daycare expenses are significant for every family who relies on child care.

Fortunately, the IRS allows families to take advantage of some tax savings in order to offset the cost.

Unfortunately, tax laws aren’t always easy to understand. Keep reading to learn more about writing off daycare expenses on taxes.

Can you write off daycare expenses?

Daycare expenses can be offset on income taxes as long as the fees have been paid with post-tax income. Some parents may opt to save money by paying for daycare with pre-tax income. It is vital to have a good understanding of tax laws or hire a tax pro when managing these write-offs and/or deductions.

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Writing Off Daycare Expenses

Good news for working parents! The United States Internal Revenue Service offers a Child and Dependent Care Credit. As with all tax credits and deductions, you must have full understanding of the law in order to take advantage of this credit.

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Whether you prepare your own taxes or hire a professional, you need to know what to expect from this tax benefit before you decide to take advantage of it.

Special Note: Tax Laws Change Very Often (…Like Every Year)
The first thing you need to know is that no tax rule is permanent. The IRS tweaks income tax laws every year.

Sometimes tax credits and deduction options are removed. Sometimes more are added. Dollar amounts may increase or decrease.

Just because you have learned about writing off daycare expenses for your current year doesn’t mean you won’t need to revisit the issue on an annual basis. Stay up-to-date on this and all tax laws by visiting the IRS website.

With that said talk to your tax professional before acting on any tax or financial information received on this website (or any website for that matter)

What is a Tax Write-Off?

Let’s start with the basics. A write-off is an expense, either personal or business-related, that can be removed from an individual’s taxable income.

A write-off is the same as a deduction. If you use itemized deductions, you may have the opportunity to deduct, or write-off, childcare expenses.

What is a Tax Credit?

Despite what you may think, tax credits and tax deductions are not the same thing.

A tax deduction, or write-off, lowers the amount of income the IRS uses to determine how much you owe in taxes. A tax credit is subtracted from the amount of taxes you are owed.

For example, if you prepare your taxes and find that you owe the IRS $5,638.50, but you have a child in daycare, you may be eligible for a credit of up to $6,000.

Assuming you qualify for the top amount, you would have a surplus of $361.50, which the IRS would then owe to you.

The Child and Dependent Care Credit

This is where things get a bit tricky. Not everyone qualifies for the Child and Dependent Care Credit. Likewise, many who do qualify will not be credited with the top amount.

1. You must have earned income

You cannot claim the credit without earned income. For instance, if you use investment earnings to pay for daycare, the credit cannot be claimed.

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The same is true if you are not working but use savings or gifted money. However, you may be able to apply the credit if you are not working but can prove that you are actively looking for work.

2. You can claim the credit for any child who is age 12 or younger.

As long as your child is receiving professional child care and they are under the age of 12, you will qualify for this credit. However, if you pay for a child who is 13 or over to attend any type of care facility, they will not qualify.

The exception to this is individuals who are unable to take care of themselves. There is no age limit to declaring dependent care for those who must receive professional care due to medical or emotional factors while you are working.

3. You can claim the credit for all paid child care

The child care credit is not exclusive to daycare centers. You can claim this credit if you use a nanny, babysitter or even a family member as long as they are paid to do so while you are working.

There are some exceptions to this rule:

  1. Your paid child care provider must be offering services while you are working. You cannot claim the credit for programs that are designed to give stay-at-home parents some free time during the day. Likewise, you cannot claim the credit for babysitters who watch children during evenings out.
  2. You cannot claim the credit if the person offering daycare services is a dependent of yours. An example would be a parent that you claim on your income taxes or an older child.
  3. You cannot claim the credit if the person offering daycare services is a parent of the child in question. This is even true if the parents do not live together and one pays the other for child care services.

Final Thoughts

The child care tax credit is a great way to offset the high cost of daycare. Make sure to speak to your local tax guy to be sure you know how to use it.

Just make sure you speak to your tax guy to be sure you know how it works before you attempt to use it.

What are your tax tips and tricks? Let us know in the comments!


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