Be Tax Savvy! Deduct Daycare Expenses

By Tanya Roth, Esq. on March 23, 2010 | Last updated on March 21, 2019

Child care expense deductions could be one of the most overlooked tax deductions. But if you're a working parent, or even if you are a job-seeker, you may be able to take these allowable tax deductions for child care.

You see, you can deduct, up to a certain percentage or dollar amount, any work-related child care expenses. This rule also applies to the care of an incapacitated spouse and certain other individuals, but for the purposes of this post, we'll talk about the tax breaks for parents.

If you child was under 13 when the care was provided and is your dependent, the expenses for the child's care might be allowable deductions.

Here's the simplified breakdown:

  • There are dollar limits. You can only take a deduction up to $3,000 for one qualifying child or $6,000 for two or more.
  • You can take a tax deduction on a percentage of your work-related child care expenses. The IRS Table provides the percentage you must apply to your Adjusted Gross Income in order to figure out your deduction. Therefore, if you're AGI is $50,000, you are entitled to a 20% deduction. So, if you paid $10,000 in the year for work-related day care expenses, you may be able to take allowable tax deductions of $2,000 for child care. Of course, you can't go over $3,000 for one qualifying child (or $6,000 for two or more).
  • You (and your spouse) must have earned income in the year.  Also, if you or your spouse earns less income than the allowable percentage (see above bullet), then you can only take a deduction up to the amount earned.
  • The child care expenses must be "work-related." This means that the child care expenses are necessary in order for you and your spouse to work. Of course, this does not preclude parents who own their own businesses, parents who are job-hunting, or parents who are full-time students.
  • Preschool or pre-kindergarten expenses are deductible. You can deduct expenses for schooling prior to Kindergarten. After that, you can only deduct for after-school child care expenses.
  • You should keep records about the child care provider and amounts paid.
  • Subtract any child care benefits you get from work. If you're allowed to deduct $3,000 for child care expenses but your work pays you $1,000 per year for child care, then you can only take a deduction of $2,000.

Other tax breaks for parents (which we'll talk about in subsequent posts) are the Child Tax Credit and the dependency exemptions.

Other Posts in TaxSavvy series

  1. What Is Gross Income, Anyway?
  2. Do Gifts = Income? 
  3. The Education Tax Deductions 
  4. Medical Expense Deduction
  5. So, You Married a Tax Cheat?
  6. Bad Debts or Gifts?

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