taxes

When to claim credit for the kids

George Saenzq_v2.gifDear Tax Talk,
I don't quite get this: I am married and my wife is a homemaker and we have two children in preschool. If my wife worked, we would be able to get a child care credit for the cost of preschool (which is fairly expensive), even though they only go three days a week, up to the $4,800.

Since my wife doesn't work, I have to pay for preschool and do not get a child care credit. It seems like the government would rather my kids not go to school and not have the same opportunity that working parents' children have. If anyone could use the credit, I would think it would be the single-income household.

Can I deduct my preschool expense as an educational expense? This tax law doesn't seem to make sense; people who make more money get a better break because they have different priorities.
-- Matt

a_v2.gifDear Matt,
You're missing the point of the tax credit. The credit isn't designed to provide education to children, but rather a subsidy for child care that allows both parents to work or study. More parents working mean more tax revenues. That's priorities! Education has nothing to do with it.

Education is already mandatory at certain ages for children. In fact, mandatory educational instruction does not qualify for the dependent care credit. In other words, the cost of schooling a child in kindergarten or above is not eligible for the dependent care benefit. Only amounts spent for your dependent child under age 13 for care before and after school or for prekindergarten qualifies for the credit.

As you found out, the maximum amount of expenditures that qualify for the credit are the actual amounts spent or, if married, the lesser of the earned income of each spouse. If one spouse does not work or study, the couple is not eligible to claim the credit on Form 2441.

A spouse who studies full time for five or more months during the year is considered to make $250 a month for each month of studies if there is one dependent, or $500 for more than one dependent. Similar rules apply for an incapacitated spouse who is unable to care for the children.

By the way, the $4,800 limit for two children has been increased to $6,000. There is no deduction for preschool, but you do get a $1,000 tax credit for each child plus the dependency exemptions. These benefits alone should cover more than half of the cost of schooling.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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