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Is it possible to claim day care costs on a tax return? The answer to this question means more than simply claiming credit. Taxpayers should be able to meet specific guidelines to claim these costs for child and dependent care expenses.
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Which guidelines should you know about? Can you claim day care costs when filing your return? Let’s find out.
Claiming Day Care Costs on Your Tax Return
Angel Li, CPA and partner at FML CPAs, said parents of children age 13 and under are eligible to claim the child care credit. This credit may be applied to day camps and after-school programs.
However, parents must be able to meet specific requirements. For the 2022 tax year, Portia Rose, managing director at Mazars, said an individual can claim a credit for expenses related to child care if they work or are looking for work.
Guidelines for Claiming the Child Care Credit
Parents who want to claim the child care credit must be able to meet the following guidelines.
Qualifying Individual
Li said a qualifying individual may be one of the three options:
- Qualifying child who was under age 13 when the care was provided
- Your spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year
- An individual who was physically or mentally incapable of self-care and lived with you for more than half of the year
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Qualified Child Care Entity
To claim day care costs on a tax return, Li said you have to use a qualified child care entity. If it is an individual child care provider, the taxpayer will list their Social Security number (SSN) or an employer identification number (EIN) for a day care center.
Before filing your tax returns, Rose recommends making sure you have the tax identification number, name and address of the day care provider.
Earned Income and Work Related Expenses
Earned income, Li said, includes wages, salaries, tips other taxable employee compensation and net earnings from self-employment.
Work related expenses are costs you pay for services to allow you to work or search for jobs. Li said these costs can be nanny-share arrangements, day care, preschool and day camp for your qualifying persons. Care can be provided either at your home or outside your home.
What if you make payments to someone like your mother-in-law who isn’t a child care facility? Li said in general, you don’t need to pay a child care facility or a private licensed care provider to get the credit. You do need to make sure you report the required information on your return. Li recommends consulting with your tax advisor if the payments are to relatives and dependents.
Joint Return
Generally, Li said married couples must file a joint return to take the credit. They must be able to identify all persons or organizations which provide care for their child or dependent. This includes the name, address and TIN (either the SSN or EIN) of the care provider on your tax return.
Couples that are legally separated or living apart from their spouse, Rose said, may be able to file a separate return and still take the credit.
What if My Employer Offers Dependent Care Benefits?
If you work for a company that provides dependent care benefits, Rose said the amount of the benefit is excluded from your taxable income. It reduces the amount of credit you can claim on your return.
How Much Can Taxpayers Claim for the 2022 Tax Year?
“Taxpayers can claim a credit of up to $3,000 for one qualifying dependent, or $6,000 for two or more qualifying dependents,” said Rose. “The maximum credit is 35% of your expense and decreases to 20% if your adjusted gross income is over $43,000.”
For the 2022 tax year, Rose said the credit for child and dependent care expenses is nonrefundable. This means you won’t get a refund if you don’t pay tax and the credit can just reduce your tax only down to zero.
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