Claiming the Child-Care Credit for Preschool Costs

I moved my 4-year-old son from day care to a preschool program at a private school this month. Does the cost of preschool still count for the child-care tax credit?

Yes, the cost of preschool can still count toward the child-care credit -- just like the cost of day care, a nanny or babysitter, and day camp in the summer and during holidays. The cost of school doesn’t count once your child reaches kindergarten, but the cost of before-school and after-school care can qualify until your child reaches age 13, if you pay for the care so you can work.

To take the credit, both you and your spouse must work (or be looking for work). You can also qualify if one spouse is a full-time student and the other is working. The total credit depends on your income. Families earning less than $15,000 can claim a credit for up to 35% of eligible expenses. The percentage gradually decreases to 20% of eligible costs for families earning more than $43,000 (there is no maximum income limit).

You can claim up to $3,000 in eligible child-care expenses for one child or up to $6,000 for two or more children, but the actual credit equals $600 to $1,050 if you have one child, or $1,200 to $2,100 if you have two or more children. It is a tax credit, rather than a deduction, so it lowers your tax liability dollar for dollar.

For more information, see IRS Publication 503 Child and Dependent Care Expenses.