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What is the Child Care Tax Credit and Who Can Benefit from It?

The Child Care Tax Credit can be a godsend for parents and those who are starting up their school. Here’s a little information about how using the credit yourself or telling your potential children and their families about the credit could really help out creating a win/win scenario for everyone.

What Is the Child Care Tax Credit and How Does It Help Out?

This tax credit is officially called the “Child and Dependent Care Credit” from the IRS website. What it does is make it easier for the parents of children to go out and find work by giving them a tax credit to go out and find daycare.

In order for them to get it, they have to be filing together as married people with a dependent child. There are exceptions where they might be able to do it anyway even if they are filing separately if they are still both looking for work to support their child. You can check out more information about exceptions here.

Who Exactly Qualifies for the Credit?

In order to file, a parent has to have a dependent child who qualifies and is under the age of 13 when they’re paying for child care. There are other people who qualify as well, but that’s the main one for getting credit for daycare.

Qualifying Part of the Year

It’s worth noting that if someone ends up qualifying for only part of the year, they’d have to fill out the form for only expenses during the part where they qualify. This could matter if they can only claim their child as a dependent for part of the year, for example.

What Kind of Care Qualifies?

The credit is actually somewhat flexible about this. It can apply to in-house or outside care. The important bit is that you can only include expenses that are directly for the care of the child. That’s where the credit is highly helpful for daycare providers because everything parents pay you to do is directly for the care of their children, which means it can all be covered.

Details to Report & Full Potential Benefits

When you have the families start the form, they need to write down the name of your business as well as the address, the social security number or employer identification number, and everything related to the proper form for the tax return. They can fill out a form to request this information from your care provider, but you can just provide it to them as part of your conversation.

Making sure that families are aware of what they have access to potentially can go a long way in helping them understand the advantages regarding going with you as a provider.

It’s even possible to exclude as much as $5000 for dependent care benefits they get from an employer.

The limit is fairly generous from the government in terms of a credit. The families can calculate credit as high as $3000 if it’s just one dependent. If they have two or more children, the amount goes up as high as $6000.

The IRS page says that eligibility depends on if they are paying the organization primarily for assuring the “individual’s well-being and protection,” so daycare companies certainly qualify

Introducing the Plan & Getting Through the Paperwork

This part isn’t bad at all. There’s just the one form to fill out that’s extra. It’s called form 2441. You just fill out the name of the organization in Part I, qualifying expenses in Part II, Dependent Care Benefits in Part III, and then you’re done.

If you tell potential customers that there are only three parts to fill out on a two-page form, this can go a long way to helping them understand that they are safe going with daycare from you and can get money back into their pocket during tax time.

Finding new jobs and focusing on increasing income for the purpose of raising a child will become much easier for them to justify if they know about the credit and get a little guidance from you about how they would get the credit and recover money from the expense.

They can then go out and look for their jobs, knowing that their child or children are someplace safe and positive and that they can put their full effort in. This will also only make it easier for them to make more money in the long run anyway.

In many cases, parents may have been putting off looking for a new job and getting back to work for a long time due to having to worry about not having any place to put the children. The credit will often help them to see the benefits of doing everything this way since it’s hardly ideal to have half of the potential earners for the household unable to do what they do best

Helping Families Take Advantage of the Child Care Tax Credit

If you’ve found families that qualify for the credit, an excellent way to get started is to point them towards the special form that they need to fill out. This is called the Child and Dependent Care Expenses form, and you can attach it to 1040, 1040-SR or 1040-NR.

This is where they should start in terms of getting the tax credit. It’s not too difficult to fill out, but for anyone who’s having trouble, it’s certainly something that they can bring with them to a tax professional to make double sure that they know they’re getting that credit.

It’s one of those scenarios where everyone wins. You get new customers, and the parents get daycare they can afford much better so they can go out and improve their lives and the lives of their children with better jobs.

Even the government wants your potential customers to keep money rolling through the economy and keeping children as safe as they can be while parents get to both find good care for their children and be productive.


Wonderschool is a network of quality in-home early childhood programs. Our mission is to ensure that every child has access to a home away from home that helps them realize their full potential. We work with experienced educators and child care providers to help them start their own child care or preschool out of their homes, whether they live in apartments, condos, or homes that they rent or own.