Can You Write Daycare Off on Taxes?

Eligible taxpayers may receive tax credits for qualified child care expenses.

Congress passed legislation allowing working parents to claim a tax credit for limited child care costs. Taxpayers can claim credits through the Child and Dependent Care Credit on their tax returns for their qualified children. Qualifying taxpayers must file as single individuals, head of household, married filing jointly or qualifying widow. Married taxpayers may not file separately and qualify for the child care tax credit.

Qualifying Reasons for Child Care and Eligible Providers

Taxpayers can claim the Child and Dependent Care Credit if the child care was necessary for the taxpayer to work or find work. Married taxpayers who file jointly must both work or look for work to qualify. Taxpayers must earn and report taxable income through wages or tips to take the credit. Taxpayers may not pay their spouses or any other dependent or dependent child to qualify for the tax credit. Eligible providers include daycare centers that comply with tax regulations and other government regulations. Overnight camps do not qualify as eligible providers. Taxpayers must provide the daycare provider's tax identification number, legal name and permanent address.

Tax Limits and Form 2441

For 2010, taxpayers use the Child and Dependent Care Expenses tax form to claim the tax credit. The credit is limited to $3,000 for one child and $6,000 for two children. Taxpayers who deduct child care costs through an employer's dependent benefit plan and exclude income through employer-paid contributions are subject to special tax rules. The IRS requires these taxpayers to subtract the dependent care amount from the IRS credit limit using a reduced dollar calculation.

Qualifying Children

The qualifying child must live with the taxpayer for more than half of the tax year unless the tax code provides an exception. Exceptions for divorced and separated parents exist in certain situations. Children must be under 13 years old when the daycare expenses were incurred or physically or mentally unable to care for themselves. Additionally, the IRS allows eligible taxpayers to claim credits for necessary and qualified adult care. To qualify as a dependent, in addition to the residency requirement, the IRS requires the taxpayer to be able to claim the child as a dependent and provide more than half of the child's support for that year.

Work-Related Child Care

The IRS requires taxpayers to look for work or work to qualify for the credit. The taxpayer's work may be a sole-proprietorship or full- or part-time work. Taxpayers may also look for work to claim the credit but must still earn income during that year. For instance, paying for a babysitter during a couple's date night does not qualify as required work-related child care. Additionally, married taxpayers who alternate night and day shifts still incur work-related child care expenses if the taxpayer hires a qualified provider to care for their children while the other spouse is sleeping after working a night shift. The IRS does not consider volunteer or charitable work as "working" under the IRS' tax rules.

Considerations

Since tax laws frequently change, you should not use this information as a substitute for legal or tax advice. Seek advice through a certified accountant or tax attorney licensed to practice law in your jurisdiction.

References

• IRS.gov: Publication 503-2010 (Child and Dependent Care Expenses)
• IRS.gov: Instructions for Form 2441 (2010)

Resources

• Nolo.com: Get Tax Relief for Child Care Expenses