Can I Deduct Preschool Tuition?

August, 20 2021 by Steve Banner, EA, MBA

I’m pleased to say that under certain circumstances you can indeed claim a tax benefit for preschool tuition. And thanks to recent changes in the tax law, the benefits for preschool tuition paid during the 2021 tax year are greater than ever before. But before we get too carried away with thoughts of what to do with that extra cash, let us explore what I meant by the “certain circumstances” I mentioned above.

The tax benefit that you may be able to receive for preschool tuition is the Child and Dependent Care Expenses tax credit. This tax credit is designed to help taxpayers who incur expenses for daycare or similar services so that they can work or look for work while their children or dependents are being looked after.

When talking about such care programs we often think of a neighborhood daycare center, or even a care provider who comes to our home for the day to look after our children while we are at work. Expenses paid for these types of care arrangements can be included when claiming the Child and Dependent Care Expenses tax credit. But expenses paid for a nursery school, preschool, or similar program below the level of kindergarten can also be claimed. Please note that expenses for children in kindergarten or higher levels of schooling do not qualify.

So, in a nutshell, if your child or dependent attends preschool while you are at work, you may be able to claim your tuition and some other related expenses for the purposes of the tax credit described above. For example, among the expenses you can claim are the costs of transportation provided by the preschool to take your child to and from the school.

But let’s briefly look at the conditions related to your work situation. You must be gainfully employed, or actively searching for gainful employment. Your employment may be in the form of service within or outside your home, including self-employment. Under this definition, voluntary work for a nominal salary is not considered gainful employment. Assuming you meet these qualifications during the 2021 tax year, you can claim up to 50% of the first $8,000 that you spend on preschool tuition and other care-related expenses for your child or dependent. The 50% threshold will be reduced if your adjusted gross income exceeds $125,000, and it phases out entirely for high-income taxpayers. These amounts for 2021 are much more favorable for taxpayers than was the case in earlier years. Prior to the American Rescue Plan Act of 2021, taxpayers with income above $43,000 were only able to claim 20% of their first $3,000 of expenses related to their child’s preschool tuition and care. Unless legislation gets passed to extend the increase beyond 2021, these lower amounts will once again be in force from 2022 onwards.

By the way, even though we’ve been talking about preschoolers, the Child and Dependent Care Credit can also be claimed in relation to care-related expenses for children up to the age of 13 and for disabled dependents of any age.

If you have questions about whether or not your situation qualifies you for the Child and Dependent Care Credit, please visit IRS.gov for more information.