Is Childcare Tax Deductible?

The Child and Dependent Care Credit

This credit applies to childcare costs that allow you (and your spouse) to work or look for work:

• Daycare and preschool
• Before and after school care
• Babysitters and nannies
• Summer day camps

Maximum expenses: $3,000 for one child, $6,000 for two or more. The credit is 20-35% of those expenses (higher percentage at lower incomes). Maximum credit: $1,050 for one child, $2,100 for two or more.

What doesn't qualify?

• Overnight camps
• Tutoring or educational expenses
• Care provided by a spouse or parent of the child
• Care for a child 13 or older (unless disabled)

Dependent Care FSA (S-corp strategy)

If you have an S-corp, you can set up a Dependent Care FSA and contribute up to $5,000/year pre-tax. This money pays for childcare and reduces your taxable income. It's more valuable than the credit for higher earners. Talk to your CPA about whether this makes sense for your situation.