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Deducting Child Care Expenses

Issue

When are child care expenses deductible?

Analysis

Source: IRS Publication 503

There are several important qualifications to determine if child care expenses are deductible if they meet the following criteria:

  • The care must be for one or more qualifying persons
  • You (and your spouse if filing jointly) must have earned income during the year.
  • You must pay child and dependent care expenses so you (and your spouse if filing jointly) canwork or look for work.
  • You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent.
  • You must identify the care provider on your tax return.

Important notes include:

  • Students and those not able to care for themselves qualify as working, and dependent care expenses qualify as work-related.
  • For part-time work, only expenses for the days that are worked can be deductible.

If your employer provides dependent care benefits, you can exclude these benefits from your income. The amount of the exclusion is limited to the smallest of:

  • The total amount of dependent care benefits you received during the year,
  • The total amount of qualified expenses you incurred during the year,
  • Your earned income,
  • Your spouse’s earned income, or
  • $5,000 ($2,500 if married filing separately).

You must reduce your childcare expenses credit by the amount of the exclusion.

To calculate the exact amount of the deduction, use Worksheet A., in IRS Publication 503.