What Counts Towards the Child-Care Credit?

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Did you know the IRS will help out with a tax credit if you must hire someone to care for a child under 13, a disabled dependent of any age or a disabled spouse so you can work? To qualify for the credit, you and your spouse must work at least part time, unless one of you is disabled or is a full-time student.

For credit purposes, the IRS allows you to count in-home or outside expenses that permit you to take or keep a job or to actively search for one. The agency authorizes a tax offset for a wider range of outlays than you might think. Here’s a rundown on which expenses qualify.

In-Home Expenses

For starters, your allowable outlays include payments to a person who cleans the residence, even though caring for someone isn’t part of their duties. You can also gain a credit for the cost of, say, a companion, nurse, cook and caretaker, as well as for what you spend on their meals.

It should be noted the list of acceptable expenses doesn’t include the salary of a gardener or chauffeur. And it doesn’t include lodgings for a live-in housekeeper unless you’re able to show you made out-of-pocket outlays directly attributable to them that were greater than your normal household expenses—say, rent for an extra bedroom.

There are other restrictions as well. While you get a credit for the care of under-15 children, whether they’re looked after in or out of your home, you get no credit for the care of disabled dependents and spouses unless it takes place in your residence. The cost of caring for an incapacitated person outside the residence may entitle you to a deduction for medical expenses, but it doesn’t qualify you for the child-care credit.

Suppose, for instance, that you live with your disabled father and hire someone to nurse him while you work. Your nursing payments count towards the credit.

What happens if you place him in a nursing home? Payments to the facility don’t count towards the credit, though they may qualify as a medical expense.

Outside-the-Home Expenses

For the care of under-13 children outside the home, you can include payments to a nursery school, daycare center, day camp and babysitter. Don’t include those for transportation between the home and the facility.

Outside-the-home expenses don’t include the cost of education beyond kindergarten. Thus, the IRS forbids a credit for tuition payments in the first or higher grades. But the agency won’t disallow a credit for payments to a beyond-kindergarten school that are for child care rather than education.

An example: Let’s assume your job requires you to be away from your seven-year-old between 8am and 6pm, and your public school operates between 9am and 3pm. To hold your job, you send the youngster to a private school that provides sitters before and after classes.

You can take a credit for the school’s charge for babysitting, but not the charge for education. Just make sure the school itemizes its bill to separately show the tab for child care.

 

A reminder for accountants who would welcome advice on how to alert clients to tactics that trim taxes for this year and even give a head start for next year: Delve into the archive of my articles (more than 250 and counting). 

About Julian Block

Julian Block

Attorney and author Julian Block is frequently quoted in the New York Times, Wall Street Journal, and the Washington Post. He has been cited as “a leading tax professional” (New York Times), an “accomplished writer on taxes” (Wall Street Journal), and “an authority on tax planning” (Financial Planning magazine). More information about his books can be found at julianblocktaxexpert.com

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