As you watch teary-eyed while your child walks into preschool for the first time, you might also be wondering if there’s a way to lighten the financial load associated with this large expense.
In today’s article, I’ll explain whether you can deduct preschool tuition on your taxes.
What are tax deductions? What are tax credits?
Before we get down to it, let’s make sure you know the difference between tax deductions and tax credits. Deductions are expenses that you can subtract from your taxable income before you calculate the taxes you owe. Credits, on the other hand, are deducted from the amount of tax you owe or can increase your tax refund. Some credits, called “refundable credits,” may result in a tax refund even if you don’t owe any tax.
Can I deduct preschool tuition?
The Internal Revenue Service (IRS) allows certain educational expenses to be deducted from your taxes under specific circumstances. Generally, these deductions are associated with higher education expenses like college or vocational schools.
When it comes to preschool tuition, there is no deduction available. However, you may qualify for the Child and Dependent Care Credit.
What is the Child and Dependent Care Credit (CDCC)?
For most parents seeking relief from the costs of preschool, the Child and Dependent Care Credit will be the way to go. This is a nonrefundable credit that can help reduce your tax liability when you pay for childcare services, including preschool.
When we say the credit is “nonrefundable”, that means that the credit amount will be deducted from any taxes you may owe, but you won’t receive any overage amount in the form of a refund.
To claim the Child and Dependent Care Credit, you must meet the following criteria:
- Work Eligibility Requirement: To be eligible for the credit, you must have paid for the care of a dependent child under the age of 13 who is in your care while you work or look for work. If you are filing jointly, you and your spouse must both meet the requirement of either working or looking for work.
- Residence Eligibility Requirement: You must have lived in the United States for more than half the year. If you are filing jointly, then you or your spouse must meet this requirement. However, there are special rules for military personnel.
- Qualifying Expenses: Generally, the preschool tuition you pay qualifies as an eligible expense for the credit as long as the cost is less than your income. If you are filing jointly, the cost must be less than the income of the spouse who earns less.
How much money will I get with the Child and Dependent Care Credit?
The credit typically covers a percentage of your childcare expenses, up to a certain limit. For 2023 (taxes filed in 2024), the maximum limit for this credit is $3,000 for one child or $6,000 for two or more children.
The percentage you’ll use usually ranges from 20% to 35% of your qualifying expenses, depending on your income. If your income is over a limit determined by the IRS, then your credit may be reduced or you may be ineligible for the credit.
How do I claim the Child and Dependent Care Credit?
You’ll need to complete Form 2441 and attach it to your Form 1040 when filing your annual tax return. In order to complete Form 2441, you’ll need the name, address, and taxpayer identification number (TIN) for any person or organization that provided care for your child.
What kinds of preschool tuition can I use for the Child and Dependent Care Credit?
As long as you meet the eligibility requirements explained above, most payments made to institutions or individuals providing care will qualify for the credit. This includes both secular and nonsecular daycare centers and preschools. Additionally, before and after school care typically qualifies as long as the care is provided while you (and your spouse, if applicable) are working or looking for work.
Keep in mind that payments made to these individuals do not qualify for the credit:
- your spouse
- your child’s parent
- another one of your children under the age of 19
- another individual you claim as a dependent
While you may not be able to directly deduct preschool tuition from your taxes, you can benefit from the Child and Dependent Care Credit to ease the financial burden of childcare expenses, including preschool costs. Be sure to meet the eligibility criteria and keep accurate records to maximize your potential tax savings.
Remember that tax laws can change, so stay informed and consult a tax professional for the most current and tailored advice for your situation. Your child’s early education is an investment, and understanding your tax options can help you make the most of it.