Make After School Care a Tax Deduction

Raising children is expensive, and adding to that list of expenses is after school care. If we were to look at the cost of these programs on average, we would see that, in 2011, parents and guardians were paying between $2450 per month and as much as $10,400 for before and after school care, according to the NACCRRA. The average amount that is paid changes from one state to the next so what we are looking at here is the national average.

Even as an average these numbers are daunting. So what can parents do to help recoup this expense? They can take advantage of every tax deduction for childcare expense that is offered by the Federal Government. Understanding which deductions are available and how the cost of after school care is paid can help parents and guardians save money on after school care for their children.

The Federal Government offers several Tax Deductions for Child Care that parents can take advantage of either annually, or even monthly:

Dependent Care Flexible Spending Accounts:

As they do for medical expenses, the IRS allows Flexible Spending Accounts for child care expenses. They are called Dependent Care Flexible Spending Accounts. These accounts allow parents and guardians to deposit money into these special savings accounts. The savings are found because the funds that you deposit into the flexible spending account is pre-tax which means that federal income tax, social security tax, and even state income tax are deducted after your deposit, so you are not taxed on the deposit amount. Each fund has its own specific limitations, and it pays to understand those limitations. In general, if the money that is deposited is not used in the year that it is deposited it is lost to the depositor.

Using Child Care Tax Credits:

The child Care Tax Credit is also offered by the IRS as a means to compensate families for their child care expenses. This is usually an either/or option with the Dependent Care Flexible Spending Accounts. This can be used if your employer does not offer a flexible account or if you are a qualifying low income worker. This tax credit ranges between 20 percent and 35 percent for child care costs up to $3000 for a single child. This tax credit is somewhat tricky to figure out because it is income based. So the higher your income the less tax deduction kids benefit you receive. It is also a good idea to check with the IRS each year as tax laws change on an annual basis.

Who Can Use the Tax Credit:

Single parents can use the tax credit or couple who both work. There are some exceptions to how this works for couples. If one parent works full time and the other parent is actively looking for work, then the tax credit can be used. If one parent works full time and the other parent is a full time student, then the tax credit can be used. IRS Publication 503 clearly outlines if your situation qualifies for the tax deduction.

What Constitutes as a Qualifying Child Care Expense:

The tax credits or the flexible spending account can be used for both before and after school programs. The cost of using a nanny can usually be claimed. Babysitting and child care/day care during the summer months are also usually claimable. Preschool can be claimed as a tax deduction or tax credit too.

Because the Government is constantly changing the tax laws, it is always a good idea to check with the IRS or a tax advisor before committing to any financial plan that involves tax deductions. It is also advisable to check with your local and state tax authorities, to see how these credits may apply in the state where you live. There may also be state programs that work like tax deductions. So it really pays to be informed about child care tax topics.

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