The holidays are usually a welcome time of year… unless you have children and need someone to watch them!
If you have pre-school-aged children, your regular care will be just fine. But if they’re between five and 12, where they attend school most of the time may be closed for the holiday school break. Unless you are in a position to take vacation time to be home with them, you can find yourself in a bit of a tough situation.
Fortunately, you do have daycare options, and they may even enable you to save some money on your income taxes.
Holiday Daycare is Usually Available
Many daycare centers offer daycare to children during the holiday season, even if they don’t attend the center on a regular basis. The rates are higher than what they are for regular attendees, but for working parents, it could be a welcome part in a short-term storm. After all, you’re only looking to provide a safe environment for your children for just a week or so during holidays.
Some daycares may charge a daily rate, while others may assess weekly fees. Though they aren’t inexpensive, you can often offset some of the cost with income tax benefits. And even though you are incurring these daycare costs at the very end of the year, you can still take advantage of the tax breaks when you file your taxes.
The Child and Dependent Care Credit
This is an actual credit against your income tax, so it’ll be more valuable at tax time than a deduction.
The credit works on a sliding scale based on your income. The maximum credit is 35% of the amount you paid for childcare expenses up to $3,000 for one child and up to $6,000 for two or more children for those with incomes up to $15,000. It falls to 20% for incomes above $43,000. So if you pay $2,000 for childcare during the holidays, and your income is greater than $43,000, you’ll be able to claim $400 ($2,000 X .20) as a credit against your income taxes.
As supporting information, you need evidence of the money paid for childcare, as well as the name, address, and Social Security number (or Employer Identification Number) of the person or facility providing the service.
Some important limitations:
- It’s a non-refundable credit. That means that the credit can only be taken if you actually have income tax liability when you file your taxes.
- You are not eligible to claim the credit if your tax filing status is married filing separately.
- Your qualifying child(ren) must be under the age of 13.
- The credit can only be taken if you have earned income (or were looking for work), during the time in which you incurred the childcare expenses.
- Qualifying childcare expenses must be reduced by any reimbursements you receive from your employer.
Employer’s Dependent Care Accounts
Some employers offer dependent care flexible spending accounts (DCFSAs) that allow you to allocate up to $2,500 ($5,000 if married filing jointly) a year. It’s possible that you set up such an account at the beginning of the year but may have forgotten about it now that we’re very near the end of the year.
If you have such an account, it’s important that you use it. A dependent care account is funded with pretax dollars. However, any funds in the account that you have not used specifically for the intended purpose will be lost. The holiday season is an excellent time to use up the remaining money in your dependent care account.
Using the account to pay for holiday daycare won’t save you money on your income taxes, but it will keep you from losing any unused portion of the account due to inactivity.
So if you need to take advantage of holiday daycare, you can do so with the knowledge that you can get at least some help with your income taxes when you file your taxes.
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