Getting tax credits every month for your kid’s daycare sounds interesting. Hence the question of can you claim daycare on taxes comes up. Let’s dive deep into this topic and find an answer to this question.
Yes, you can claim tax credits on daycare. The IRS (International revenue service) offers tax credits to US citizens under the Child and Dependent Care Credit program. It’s a tax relief for parents or those paying to care for a kid or dependent individual while they’re off to work.
But it’s not that simple. There is a certain criterion and some restrictions to claim these credits. Let’s see in detail the eligibility criteria and the application process for claiming daycare on taxes.
Disclaimer: This article is meant to give you an overview of child and dependent care tax credits. We cannot answer according to every person’s individual scenarios. For that, you should contact a taxation lawyer. Plus, states often change their rules and regulations. To get the most up-to-date information visit the official site of the IRS.
Requirements to Claim Daycare on Taxes
There are eligibility criteria or requirements for getting childcare credits. Here are the requirements.
- Your kid should be under 13.
- In case of divorce or parents living apart, only that parent can claim taxes on daycare who has the child’s custody.
- The kid should be yours on paper, and you should have their custody (biologically, fostered or adopted). If a kid is living with you, but you have no legal work done yet, you can’t get a tax break.
- Your kid should live with you for at least 6 months.
- You’re getting childcare assistance to work, find a job or study (if you’re a student). You can’t claim tax credits if your purpose of getting childcare is vacations or fun.
- Your childcare provider should be registered or at least someone who doesn’t legally qualify as a dependent.
- You should have earned that year you’re claiming credits.
- If you or your partner is a full-time student and doesn’t work, they’re treated as having an income of $250 per month for 1 child and $500 for more than 1. IRS assigns this value as tax credit calculation is done based on your income.
To know more details, visit the official page of IRS.
Childcare Programs/Providers That You Can Claim
Not every type of childcare assistance or program is counted for tax credits. But before understanding it, we should know what work-related expenses are.
Whatever you spend on childcare for your qualified child is considered a work-related expense. But this childcare should allow you to work, look for work or complete your studies. And you can only claim on work-related expenses.
Some examples of work-related expenses are daycare, preschool, babysitters, nannies and anyone in your circle whom you pay and who isn’t a dependent.
To get more details, visit IRS webpage at https://www.irs.gov/newsroom/child-and-dependent-care-credit-faqs#:~:text=To%20claim%20the%20credit%2C%20you,TIN
Childcare Providers/Programs That You Can’t Claim
If you’re getting help from your parents, friends or anyone and you’re not paying them, you can’t count them as work-related expenses.
Here’s a list of caregivers whom you even pay aren’t counted as a work-related expense.
- Your child’s parent
- Your own kid who’s under 19
- Overnight or 1-day kid’s camps
- Your spouse, who’s not the kid’s parent
- Anyone in your friends or family who’s legally considered dependent
Can you claim unlicensed daycares? Yes, but in some specific conditions. Want to know more? Check out our detailed article here.
Process of Claiming Daycare on Taxes
Here’s how you can apply for claiming daycare tax credits.
1. Check if You’re Eligible
Firstly, check your eligibility. Consider the above requirements and see if you’re eligible or not. The US tax department has this 10-minute questionnaire to help you find out your eligibility. We highly recommend taking this test.
2. Prepare the Documents and Other Requirements
If you’re eligible, start collecting the required documents to apply. You’ll have to submit Form 2241 child and dependent care expenses. Download the document and start filling it out. See the documentation requirements on it.
You’ll have to mention your caregiver’s name, social security number or employer identification number and address. If you don’t know these credentials, you can use Form W-10 dependent care provider identification and certification to ask your caregiver for the details.
Besides that, you should keep records of all your work-related expenses as you’ll have to mention them.
3. Apply for Credits
Lastly, after completing Form 2241, you can file it along with your Federal Income Tax Return.
How to Calculate the Child and Dependent Care Tax Credits?
The IRS has defined limits to how much you can claim per child. For 1 qualified child, the maximum limit is 35% of total childcare expenses up to $3,000, and for 2 or more, it’s $6,000.
Now let’s say you earned $100,000 in a year. Your work-related expenses are $5,000, and you’ve 1 kid. You’re eligible for 20% credits (according to your adjusted growth income or AGI). The maximum you can get for 1 child is $3,000.
So 20% multiplied by 3,000 gives you a tax credit of $600
This is why you should have earned something the year you’re claiming. Your credits depend on your earnings and work-related expenses.
Frequently Asked Questions
This is a topic where people have hundreds of questions depending on their individual situations. We can’t cover all of it. But to know more, you can check the IRS’s child and dependent care FAQ page.
1. Where Can I Get More Information About Daycare Tax Credits?
The best option is to consult a CPA, accountant or tax lawyer. They’ll help you in each step of the process. Other than that, visit IRS’s official site for recent and first-hand information.
2. Is It Worth Claiming Daycare on Taxes?
Yes, it’s totally worth it. Child and dependent care tax credits are a government program to facilitate US citizens. You’re monthly getting some allowance to cover the daycare cost of your child. Why leave money on the table when childcare is getting expensive?
3. Can I Get the Tax Return if I’m Paying My Mother to Care For My Kids?
Yes, you can claim tax credits if you’re paying your mum or any other relative to look after your kid. But they shouldn’t be legally dependent.
We hope you got the answer to can you claim daycare on taxes.
We highly recommend you consult a taxation lawyer to get professional advice for your particular situation.
Thank you for reading!