Be Sure to Claim These Childcare Expenses on Your Tax Returns

Are you paying more than you should be on your taxes? There are a number of credits and deductions available to parents, including the childcare credit.

Claiming the Childcare Credit

The childcare credit enables you to get a portion of your childcare expenses back on your taxes. Rather than a tax deduction, which decreases your taxable income, this is a tax credit, which decreases your taxes, dollar for dollar. In other words, if you are claiming $3,000 on the credit, your total tax bill is reduced by $3,000.

Qualifying Expenses

The childcare credit allows you to deduct a variety of childcare expenses that were paid so that you and your spouse could work or look for work. This includes the cost of daycare, a nanny, babysitters, and even summer camp or day camp. It does not allow you to claim the cost of tutoring, schooling expenses, overnight camp, or date night sitters.

Who Can Claim Childcare Expenses

You can claim your childcare expenses for this credit only if you are the custodial parent of the child. If you are not the custodial parent, but you pay child support, you can claim the child as a dependent, but you cannot claim the childcare tax credit.

How to Claim Childcare Expenses

In addition to your 1040, you will need Form 2441 and Publication 503. Once you’ve completed the form, the credit amount will be entered onto line 49 of your 1040. You cannot use Form 1040EZ if you intend to take the childcare credit.

Limitations

There are a number of limitations on the credit, so make sure you do your research before taking the credit.

  • You can claim 20-35 percent of your childcare expenses, depending on your income, for a max of $3,000 for one child or $6,000 for two or more.
  • You cannot claim the credit for childcare that was provided by your spouse, teenage child, or dependent.
  • You cannot claim more than the earned income of either you or your spouse. If either of you were unemployed and a full-time student for part of the year, you can use $250 per month of schooling to figure “earned income” for the year.
  • You must first deduct any benefits you receive from your employer for childcare, such as from a pre-tax dependent care account. Only the difference in childcare costs will qualify for the credit.
  • If you are claiming the cost of a nanny or babysitter, you will have to identify the person and include their employer identification number or social security number. This makes you a household employer, so you will also have to withhold taxes and pay social security and Medicare taxes throughout the year.

Raising kids is expensive, but the childcare credit can help offset the cost. The child tax credit and the earned income tax credit offer other opportunities to recoup expenses, while dependent care accounts allow you to pay for childcare with pre-tax dollars. For more help saving money on your 2016 return, be sure to consult a tax professional.

At Mission Valley Montessori, we teach students to be well-rounded and independent, including making smart choices like you as parents will make when it comes to taking advantage of tax credits available to you.  Contact us today to schedule a tour and see the Montessori educational approach first hand and learn how our school can be a great fit for your child!

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