Are Your Child Care Expenses Tax Deductible?

Press Release — March 2, 2011 — When trying to cut costs during these hard economic times, it is unlikely that your child care expenses can be reduced. Luckily there is the credit for child and dependent care expenses offered on your individual tax return. The credit can be up to 35 percent of your qualifying expenses, depending upon your adjusted gross income.

In order to be eligible to receive the credit for child and dependent care expenses, the person receiving the care must be a qualifying person—either your dependent child under the age of 13 or certain other individuals who are physically or mentally incapable of self-care. Also, you must be the custodial guardian for the qualifying person, even if you do not claim them as an exemption. The care must have been provided while you (and your spouse) are either working or looking for work. If you are married, you must file a joint return in order to file for the credit. In order to claim the credit, you (and your spouse) must have earned income from wages, salaries, tips, or net earnings from self-employment. One spouse can be exempt from having earned income if he or she were a full-time student or were physically or mentally unable to care for him or herself.

Another qualification that must be met in order to receive the credit is that the dependent care must have been provided by a qualified caregiver. Spouses, dependents, and children under 19 are not qualified caregivers. At the end of the year, most caregivers will provide a statement with their federal employer ID number (EIN) or social security number (SSN), full name, address, and amount paid. All of this information is necessary for your tax return. If you do not receive a statement at the end of the year for this information, you should request this information prior to bringing your information to your tax preparer.

If your employer provides a dependent care benefit, the amount of dependent care expense claimed must be reduced by the benefit amount. If you pay someone to come to your home and provide care, you may be considered a household employer. Please contact a tax professional for guidance.

This article contains general tax information for taxpayers. Each tax situation may be different, so do not rely upon this information as your sole source of authority. Please seek professional advice for all tax situations. Tax professionals are experts who keep current on tax law changes. They can save you time and offer insight on how to use the tax breaks available to you. To find a professional tax preparer, look to NATP whose members subscribe to a strict code of ethics and standards of professional conduct (read them in the Press Room at www.natptax.com). To see NATP’s list of professionals in your area, visit www.natptax.com and click Find a Tax Pro.

Members of the National Association of Tax Professionals (NATP) work at offices that assist over 11 million taxpayers with tax preparation and planning. The average NATP member has been in the tax business for over 20 years and holds a tax/financial designation and/or a college degree. NATP has more than 20,000 members nationwide. Members include individual tax preparers, enrolled agents, certified public accountants, accountants, attorneys, and financial planners. As a nonprofit professional association, NATP serves professionals working in all areas of tax practice through professional tax education, tax research, and tax office supplies. The national headquarters, located in Appleton, WI, employs over 45 staff members. Learn more at www.natptax.com.