Kinds of Expenses To Count

A wide variety of child or dependent care expenses are counted, for purposes of the child and dependent care credit. The care can be provided in your own home, another's home, or at a daycare center. However, if the care is provided outside your home, the qualifying person must be either your dependent under age 13, or any other qualifying person who regularly spends at least eight hours each day in your household. In other words, boarding school does not qualify.

If you use a dependent care center (that is, a place that provides care for more than six persons and charges a fee), the center must comply with all applicable state and local regulations.

Expenses of caring for the qualifying person do not include amounts spent for food, clothing, and entertainment unless the costs can't be separated out of the other costs you pay for the individual's care.

Education. You can count the total cost of sending your child to school if the child is not yet in first grade, and the amount you pay for schooling is incidental to the cost of care.

If your child is in the first grade or higher, or the cost of care can be separated from the cost of school, you can only count the cost of care.

Example Carla Webb sends her three-year-old child to a nursery school that provides lunch and educational activities as a part of its preschool program. She can count the total cost of the school in figuring her credit. However, Wilbur Mudd sends his five-year-old child to kindergarten in the morning. In the afternoon, the child attends an after-school daycare program in the same school. Mudd's total tuition cost is $3,000, of which $1,800 is for the after-school program. Only the after-school program qualifies in figuring Mudd's credit.

Camp. You can deduct the full cost of sending your child to day camp, provided the money was spent to ensure the child's well-being during your absence from the home while at work. However, the cost of sending your child to overnight camp is not deductible at all.

Household services. If you pay someone to perform household services, you can count the fees or wages as long as the services are at least partly for the well-being and protection of a qualifying person.

In this context, household services are the ordinary and usual services done in and around your home that are necessary to run your home. They can include the services of a nanny, babysitter, nurse's aid, housekeeper, maid, or cook, but not a driver, bartender, or gardener.

If one individual performs some services that don't qualify (e.g., your cook doubles as a driver), you can't count the part of the payment that applies to the non-household services. However, you don't have to allocate the payments if only a small part applied to nonqualified purposes.

Example Basil Holmes pays a housekeeper to care for his children, aged nine and 15, so that he can work. The housekeeper spends most of the time doing normal household work, but also spends 30 minutes each day driving the children to and from school. Holmes can treat the entire expense of the housekeeper as work-related because the time spent driving is minimal. He doesn't need to apportion the housekeeper's wages between the two children, because the household services are at least partly for the care of the nine-year-old, who is a qualifying person. However, he can only count the first $3,000 that he pays the housekeeper for the year, because he has only one qualifying person (the 15-year-old is too old to qualify).

Meals and lodging that you provide to a household worker count as child or dependent care expenses.

If the person performing services in your home is your employee, you may have to pay federal and state employment taxes (Social Security, Medicare, and unemployment taxes). If the services qualify for the dependent care credit, any taxes you pay on the services are also qualified expenses.

Prepaid or postpaid expenses. If you prepaid for some 2014 child care expenses in 2014, you can claim them only in the year that the dependent care is actually received. In that case, you'll fill out your Form 2441 as if the prepaid expenses were paid in the same year that the care was received. However, if you received some care in 2013 but won't pay for it until 2014, you can claim the care only in the year you paid for it. You will have to file Forms 2441 and 1040 or Form 1040A in order to get any available credit for this care.

Dependent care assistance provided by your employer. Any child or dependent care expenses that were paid for or reimbursed by your employer can't be counted for purposes of the tax credit for dependent care.

Moreover, if you received any such assistance from your employer, you will have to subtract the amount of assistance from your applicable credit expense limit (the limit is $3,000 for one qualifying person and $6,000 for more than one). If the answer is a positive number, that answer is the maximum amount of expenses you can claim when computing your tax credit for dependent care.