As drive teary-eyed your child to preschool to school for the first time, you might also be wondering if the preschool tuition is tax deductible. After all, these days, a high end preschool can cost nearly the same as college tuition. So, it’s no surprise that parents are looking for ways to lighten the financial burden associated with this huge expense.
Given these points, we’ll discuss whether you can deduct preschool tuition on your tax return.
What Are Tax Credits and Tax Deductions?
First, let’s make sure you know the difference between tax credits and tax deductions. Credits are deducted from the amount of tax you owe or can increase your tax refund. Even if you don’t owe any taxes, some credits called ‘refundable credits’, may provide a tax refund.
Deductions, on the the hand, are expenses that you can subtract from your taxable income before you calculate the taxes you owe.
Is Preschool Tuition Tax Deductible?
Per the Internal Revenue Service (IRS), certain educational expenses can be deducted from your taxes under specific circumstances. In general, these deductions are associated with higher education expenses like vocational schools and college.
Unfortunately, when it comes to preschool tuition, there is no available deduction. But you may qualify for the Child and Dependent Care Credit.
What Is The Criterion For Child and Dependent Care Credit (CDCC)?
If you’re looking for relief from preschool expenses, the Child and Dependent Care Credit may be your only option. This is a nonrefundable credit that can help reduce your tax liability when you pay for childcare services, including preschool.
‘Nonrefundable’ in this case means that the credit amount will be deducted from any taxes you may owe, rather than receiving an overage amount in the form of a refund.
In order to claim the CDCC, you must meet the following criteria:
- 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. If the cost of the preschool tuition is less than your income, then the preschool tuition you pay may qualify for the credit. And if you file jointly, the cost must be less than the income of the spouse who earns less.
- 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. The child must be 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.
How Much Money Does The Child and Dependent Care Credit Provide?
In general, the credit covers a percentage of your childcare expenses, up to a certain limit. For 2023 tax year, the maximum limit when you file your taxes in 2024 will be $3,000 for one child. Or, $6,000 for two or more children. While these amounts won’t fully cover expensive school costs, the CDCC is an option that you won’t get with preschool tuition as a tax deductible.
Also, with the CDCC, the percentage you’ll use generally ranges from 20% to 35% of your qualifying expenses, depending on your income. Additionally, your credit may be reduced or you may be ineligible for the credit if your income is over a certain limit. This limit is determined by the IRS.
How To Claim The Child and Dependent Care Credit
When filing your annual tax return, you will need Form 2441 and attach it to your Form 1040. 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.
Remember that tax laws can change. So, stay informed and consult a tax professional for the most current and personalized 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.
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