We’ve made sense of the different tax implications for your child and child care expenses. This is a great start towards understanding all of the different tax advantages that might be available to you. Do something nice for yourself with all the money you save!
First, The Basic Tax Credit
This is the layup of child tax credits. In fact, it’s so basic, that’s its named: the child tax credit. If you have young children, whether they’re in daycare or not, you probably qualify for it. This means that you’ll get $1,000 right off of the top of your income taxes just for having a child. You just have to make sure that your rug rats pass a few simple tests. The tests concern age, their relationship to you, how much support they require, whether their dependent on you, if they’re a U.S. citizen and whether they live in the U.S. These are fairly straight-forward requirements, but the details are laid out here.
Daycare and Preschool Tax Break
Depending on how much you make, you can claim anywhere from 20% to 35% of whatever you spend on child care when you file your income taxes at the end of the year. There are a couple of exceptions to the child care tax break though. You can click here for a full list of the gotchas, but the most important one is that you have to be working – and earning taxable income – while your kiddos are in care. The only exception is that if you’re paying for care while looking for work, you can also qualify. Also, the benefit is limited to $3,000 for a single child. Glad to see the IRS is in touch with the real world cost of annual child care. Yeah right!
Since the IRS loves forms, they have two which are associated with this credit. You can use the first form to record some basic information about your child care provider which helps you identify them from a tax perspective. Good news: this form does not need to be filed with your other tax forms, it’s just something you should keep on file and could potentially help you with the following year’s taxes. Next up is the form you’ll have to fill out in order to take this credit to the bank. This little love letter, affectionately called ‘Form 2441’, has to be filed with your 1040 income tax form. It will guide you through calculating your child care deduction.
Tax Credits for Babysitters
OK, things start to get a little trickier here. People usually pay for babysitting ‘under the table’ and since your babysitter typically isn’t claiming the money they make on their income taxes, it’s going to be harder for you to write off that expense on your taxes. That’s not to say it’s impossible though. In fact, if you have your babysitter’s social security number, you can use it to file ‘Form 2441’ as mentioned in the previous paragraph – just make sure you talk to your sitter first. If you file the ‘Form 2441’ and your babysitter doesn’t file taxes on the money he or she makes babysitting for you, this could potentially cause trouble.
If you want to deduct your babysitting expenses, but you’re having trouble getting your babysitter’s social security number, you’re not completely out of luck. The IRS still allows you to claim the deduction even if your babysitter doesn’t want to play ball. You’d have to attach a document outlining your attempts to get the SSN, but if you’re at the point where you’re documenting your struggles with trying to get a social security number out of your babysitter, do you really want that person watching your little devils? Finally, remember you need to be working while you’re paying for care if you’re going to try and deduct it. Me personally, I’d rather be doing something a little more fun while the babysitter is on duty!
Tax Deductions for Kindergarten and Beyond
When your cribsters reach this age, the local school district should start pitching in and providing daytime activities for them in the form of kindergarten. But let’s say for a moment, that you’ve decided to put your kids in a private kindergarten. Any time you voluntarily choose a private educational program, when there is a public one available, any costs associated with that choice are yours alone and can’t be deducted from your taxes. That applies from kindergarten all the way up. Now, if you have your kids in an after school program at your fancy private kindergarten, the expense associated with the after school program is deductible. The tricky part here is that you have to be able to separate the two costs, by way of a separate or itemized bill / receipts. More scintillating details are available here.