How To Get Your Child Care Tax Credit

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Hi Guillaume! Every child care facility is different, so that would need to be discussed with your specific child care…

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Having kids is expensive. Very expensive. The food, the clothes, the diapers and the toys are just the beginning. For most families, child care is the highest single household expense, as mentioned in this recent Yahoo Finance article.

But, there’s good news! Uncle Sam is here to help and can offset some of your daycare costs. However, in order to get it, you need to be aware of some important facts. Here are 10 things you need to know to claim your child care tax credit (aka Child and Dependent Care Credit):

1. You must identify each qualifying child on your tax return.

The qualifying child must be your dependent and qualifying children must have been 12 or younger when the care was provided. The logic is that most children over 12 are able to look after themselves. However, if your child is over 12 but incapable of self-care then they may also qualify.

2. You need to be working or looking for a job.

Child care services must have been provided so that you AND your spouse (if you two are filing taxes jointly) could either work or seek employment. Days at the spa or vacations without kids will not qualify for the child care tax credit!

3. You have to be making money or be a full-time student.

You AND your spouse (again, if filing jointly) must have earned income. If you or your spouse is a full time student or if one of you is physically or mentally incapable of self-care, then you may be considered as having had earned income. However, in order to get the Child and Dependent Care Credit you need to be able to prove that you actually netted some money this past year.

4. Child care expenses cannot be paid to your own family.

This may seem obvious but it can be a gray area. You can’t pay your spouse, the parent of your child or someone else whom you claim as a dependent. In addition, you can’t pay your own child who will not be 19 or older by the end of year, even if you are not claiming them as your dependent any longer. In addition, your filing status must be single, married filing jointly, head of household or qualifying widow with a dependent child.

5. You need to clearly state who is providing child care

You must identify the child care provider on your tax return. You must name the person or facility to which you have made payments, along with their tax ID number. This would be an EIN (Employer Identification Number) if it is a corporation, or SSN (Social Security Number) if your child care provider is organized as a sole proprietor, which is often the case for home-based daycares run by individuals.

6. The child must live with you.

Although there are a few special exceptions, in general, your child must have lived with you for more than half of the year for which you are filing and requesting the child care tax credit.

7. There is a limit to how much your can claim!

You can’t claim an exorbitant amount of child care expenses. You can pay as much as you wish for child care but the IRS is only going to let you claim a certain amount. You may claim up to $3,000 of expenses paid in a year for one kiddo, or $6,000 for two or more children.

8. The child care tax credit is up to 35% of your qualifying expenses.

You don’t receive a credit equivalent to the $3,000 (or $6,000) expenses that you’re allowed to claim. You only get a tax credit equivalent to 20% to 35% of your claimed, qualifying expenses. This percentage is based on your income. So even if you paid $20,000 for child care last year, the maximum child and dependent care credit that you could receive is $1,050 for one child (35 percent of $3,000) or $2,100 for two or more children.

9. The expenses must qualify.

For example, if your employer provides child care benefits, you must subtract those benefits from your qualifying expenses. After all, they aren’t really YOUR expenses, right?

10. If you have a nanny, different rules may apply.

This article is mostly applicable for parents with children in daycare or preschool. If you pay someone to come to your home to look after your children, then you likely have what is called a household employee. You may need to withhold (and pay back to the IRS) social security and other payroll taxes. Be sure you understand these regulations before filing.

In general, many of these regulations are really common sense. They are straightforward and logical. The government will be glad to help you out as long as you can prove that you legitimately need child care and that you are working (or trying to.) It’s a nice little bonus for all of us exhausted parents looking for a “break.” Though you will need to be willing to take some extra steps filing, the child care tax credit will certainly be worth your effort!

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  • Thank you for the explanation !
    I am understanding that another way to save taxes on child care is through a dependent care FSA. Is it accepted on carelulu ?

    • Hi Guillaume! Every child care facility is different, so that would need to be discussed with your specific child care provider. In general though, with an FSA, you submit a claim to the FSA through your employer for reimbursement (you don’t directly pay the child care provider with FSA funds), so there shouldn’t be any issues. You simply need proof of the eligible expenses, and you’ll get reimbursed for your costs.

  • If I’m paying someone to watch my son over the summer, how can I claim that on my taxes? An independent person.

  • An accountant told me I can write off my childcare expenses this year because I’m completely and totally disabled and it makes it difficult for me to take care of them all the time. I am factually identified as disabled. I also have my disability pension. Want to see articles like this makes me nervous because they don’t include that. the accountant said I could write it all off. Is that true?

    • Hi Tricia! If your account said so, it might be true. We’re not accountants so we don’t know the (many) rules as well as tax professionals. In general, you can get a tax credit (not deduction) for child care expenses; as described in the post, the amount of that credit varies depending on factors like your income, the total you spent on child care, etc. As for a specific deduction (such as a 100% write-off) due to disability, it’s best to speak to a tax professional. Best of luck!

  • I would LOVE to join the daycare that charges $3K/year per kid…SIGN ME UP!!! The government needs to wake up out of the dark ages and realize that this is 2016 and the average annual cost for daycare in the US is $11,666 per year ($972 a month), according to the National Association of Child Care Resource & Referral Agencies (NACCRRA).

    • Hi Sandra! Thanks for the note. Child care is indeed expensive, as many recent reports show, it’s one of the highest expenses for families (in fact, for families with two children, child care costs can range from half as much as rent, to three times as much as rent in some areas of the country!) To clarify though, the $3,000 mentioned in the blog post is the maximum that families may claim as the expenses paid in a year for one child (or $6,000 for two or more children.) Most families will pay a lot more, but that’s the maximum the IRS will let you claim… The tax credit you would get is up to 35% of those qualifying expenses (that would depend on your income.) Anyhow, thanks for the note, and best of luck!

    • I wish I only paid 3k a yr!! I have one child am a and work at the very least every other weekend ehhh those rates are out the roof and work hours way past normal daycare hours so I have to pay someone to pick him up from there

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