Can I deduct after school care?

December, 19 2019 by Glynis Miller, CPA, MST

Finding a daycare center once a child reaches the age to attend school can sometimes be difficult, if not impossible. Thus, parents in need of childcare may use a school-age program to care for their child. As such, these school-age programs usually offer some type of after school program for children from kindergarten through high school. Before-school care might also be offered; costs for before school care may be considered along with any after-school care cost if the requirements noted below are met. So, the question is often asked if the cost of after school care can be deducted for tax purposes. If the taxpayer has costs for after school care of a qualifying dependent, those costs may provide some tax benefits.

If a taxpayer (and spouse, if filing jointly) paid after school care for their qualifying child so that they could work or look for work, they may be able to recoup some of the cost by claiming the credit for child and dependent care expenses (Form 2441). Generally, the taxpayer (and spouse, if filing jointly) must have earned income to take the credit; however, if one spouse was a student or disabled, it may still be possible to take the credit.

In order to take the credit, the taxpayer must have a “qualifying child.” The qualifying child must meet the following requirements:
 

• A child under age 13 − or any age if permanently and totally disabled
• The child can be claimed as the taxpayer’s dependent.
• The child must have lived with the taxpayer for more than half of the year.

If the child turns 13 during the tax year, qualifying after school care expenses can be taken for the part of the year the child was under age 13. In the case of divorced or separated parents, only the custodial parent may claim the after-school care cost. The custodial parent can claim the credit for child and dependent care expenses even if they choose not to claim the child as a dependent.

Child and dependent care expenses used to claim the credit are limited to $3,000 for a qualifying child and $6,000 for two or more qualifying children. Thus, any qualifying cost for after school care will be included in the limitations set for child and dependent care expenses, not allowed as additional costs above these limits. The taxpayer will receive a credit based on a percentage of the qualifying expenses paid. Included in “qualifying expenses” is the cost to protect and care for a child or dependent. If a spouse or other parent of the qualifying child or another individual claimed as the taxpayer’s dependent, such as an older sibling, is paid for providing the care, those costs do not count. The taxpayer receives a credit ranging from 20 percent to 35 percent of the qualifying expenses incurred, based on the level of income level earned.

The Form 2441 must be included in the tax return reflecting the child and dependent care expenses claimed and the resulting credit. When dependent care benefits (DCBs) are received from an employer, the amount of the benefit must be included on Form 2441 to determine the amount of the DCBs that can be excluded from income. It is important to complete Part III of Form 2441, or the child and dependent care credit may not be calculated correctly.