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Question:


I heard you could write off childcare on your taxes. Is this true? What other tax credits/deductions can parents utilize?
-MommyDearest


Answer:


There is indeed a tax break for childcare expenses, and it’s better than a write-off. It’s a dollar-for-dollar credit of 20 percent to 35 percent of expenses, with a maximum credit of $6,000. That means your tax bill can be reduced by that amount, whereas a deduction would cut your tax liability only by the percentage of it corresponding to your top tax rate. The credit applies to children 12 or younger that you claim as dependents on your tax return; children who are older and unable to care for themselves also qualify.

The percentage of the credit depends on your adjusted gross income. The higher it is, the smaller the percentage. There is some other fine print to be concerned with. If you participate in a program at work that allows you to contribute a portion of your salary toward childcare costs with pretax dollars – like a 401(k) plan for childcare – then the amount eligible for the credit is reduced by the amount of the contributions. Also, you cannot claim the credit if the one looking after your kids is another dependent, say your own parent or another relative who lives with you.

As for other deductions and credits, there is the extra personal exemption for each dependent, of course, and there are several tax breaks related to education, such as 529 plans and Coverdell accounts. You can find out more about them by looking through past Ask the Expert questions.

-Conrad de Aenlle



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