Tax Breaks for Child-Care Expenses

We set aside $5,000 last year in a dependent-care flexible spending account through work to pay for my son’s child-care expenses. However, we ended up with out-of-pocket expenses in excess of $5,000. Can we also take the child-care credit when we file our tax return?

No. Because you are paying for care for only one child younger than age 13, you can’t take the child-care credit for the excess expenses. If, however, you were paying for two or more kids, you would be able to claim the credit on up to $1,000 of child-care expenses beyond the $5,000 covered by your flex plan.

The child-care credit applies to up to $3,000 of child-care expenses for one child or up to $6,000 for two or more. The most you can run through a flex plan, regardless of the number of children involved, is $5,000. So for a family with two or more qualifying children who max out on the flex plan, up to $1,000 of additional expenses could qualify for the credit. Because the credit ranges from 20% to 35% (depending on income), that could knock $200 to $350 off the family’s tax bill.

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The cost of a nanny, day care or preschool counts for the child-care credit or a dependent-care FSA, as does the cost of before-school and after-school care and summer day camp for kids younger than 13 if the expense is incurred so that you and your spouse can work. You can also qualify if one spouse is a full-time student and the other is working. For more information about the child-care credit, see Tax Break for Summer Camp.

To calculate the child-care credit you can claim -- whether or not you receive dependent-care benefits from your employer -- see IRS Form 2441. Also see Publication 503, Child and Dependent Care Expenses, especially the “reduced dollar limit” section on page 11 about coordinating the dependent-care FSA and the child-care credit.