Advertisement
Tax Breaks

Claiming the Child-Care Tax Credit

You may be able to take advantage of this tax break even if you contribute to and use money from a dependent-care flexible-spending account.

I used my dependent-care flexible-spending account at work to pay for my two daughters’ daycare expenses in 2011. But I still had way more expenses beyond what I had in my FSA. Can I take the child-care tax credit for any of the extra expenses?

Yes. Because you have two kids and had more than $5,000 in child-care costs, you can claim a portion of the tax credit even though you have already used pretax money from your FSA for their care.

Advertisement - Article continues below

Here’s how the two tax breaks play out: With a dependent-care flexible-spending account, you can set aside up to $5,000 in pretax money to pay for care for your children under age 13 while you work. With the child-care tax credit, you can claim up to $3,000 of expenses for one child under 13 and up to $6,000 for two or more kids. You can’t use the same expenses to get both tax breaks. It’s usually more valuable to use the FSA for child care than it is to take the tax credit because money in the FSA escapes Social Security and Medicare taxes as well as income tax (see FSA or Child-Care Credit? for details). Also see IRS Publication 503 Child and Dependent Care Expenses,

Advertisement
Advertisement - Article continues below

If you pay for care for two or more kids under age 13, you can max out your FSA and still claim the tax credit for up to an extra $1,000 in expenses, which would cut your tax bill by at least $200. If you have just one child and you’ve maxed out your FSA, you aren’t eligible for the credit because the limit is $3,000 in total expenses; you can’t use any excess expenses toward the credit.

Advertisement - Article continues below

Families who earn less than $15,000 can claim a tax credit for 35% of their child-care expenses; families who earn more than $43,000 get the smallest credit, worth 20% of their eligible expenses. This is a tax credit, not a deduction, so it lowers your tax bill dollar for dollar.

Expenses that qualify for both the spending account and the credit include the cost of daycare, a nanny or babysitter, preschool, before-school or after-school care, and even the cost of summer day camp for children under age 13, if you spend the money on care so you can work or look for work. If you’re married, both you and your spouse must have a job (or be looking for work) or be a full-time student to qualify. To claim the credit, file Form 2441 with your federal tax return. For more information about the child-care credit, see FAQs on the Child-Care Tax Credit.

For more tax information for this year’s filing season, see 7 Tips for Filing Your 2011 Taxes.

Advertisement
Advertisement

Most Popular

11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020
Where You Should Invest Now
investing

Where You Should Invest Now

Kiplinger.com senior investing editor Kyle Woodley joins our Your Money's Worth podcast to answer investor questions about tech stocks, the election a…
September 22, 2020

Recommended

The Annuity With a Tax-Planning Twist
Financial Planning

The Annuity With a Tax-Planning Twist

A qualified life annuity contract helps retirees with guaranteed payments to last their entire lives.
September 21, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
Most-Overlooked Tax Breaks for the Newly Divorced
tax deductions

Most-Overlooked Tax Breaks for the Newly Divorced

Filing taxes after a divorce can add yet another problem to an already long list of challenges. But here are some tips to make your return to single l…
September 18, 2020
What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much could it save you?
September 17, 2020