How Do I Add a Child Care Provider (LAFCP) to My Tax Filing?
Learn how to correctly add a child care provider to your tax filing, ensuring compliance with requirements and optimizing deductions for eligible expenses.
Claiming child care expenses on your tax return can reduce taxable income, but correctly reporting payments to a licensed and approved family child care provider (LAFCP) is essential. Errors in this process can lead to delays or missed deductions.
To comply with tax regulations, follow specific steps when reporting child care payments.
Key Filing Requirements
The IRS requires essential details to verify child care expense claims. The provider’s Taxpayer Identification Number (TIN)—either a Social Security Number (SSN) or an Employer Identification Number (EIN)—must be included on Form 2441, Child and Dependent Care Expenses, filed with Form 1040. Without a valid TIN, the IRS may reject the deduction or credit, increasing tax liability.
To ensure accuracy, request Form W-10, Dependent Care Provider’s Identification and Certification, from the provider. This form documents their legal name, address, and TIN, serving as proof in case of an audit. If a provider refuses to provide their TIN, document your attempts to obtain it. The IRS may still allow the claim if you can demonstrate reasonable effort.
Payments must be for services provided while you (and your spouse, if filing jointly) were working or seeking employment. The IRS may request proof, such as W-2 forms or pay stubs. Cash payments should be properly recorded, as unverified transactions may raise audit concerns.
Criteria for Eligible Child Care Providers
The provider must operate legally within their jurisdiction, complying with state licensing laws or meeting exemption criteria. Licensing requirements vary—some states mandate licenses for all providers, while others allow exemptions for small-scale or home-based care.
The provider cannot be your dependent or spouse. For example, payments to a 17-year-old child for watching a younger sibling do not qualify. Similarly, payments to the child’s other parent, even if unmarried, are not eligible. The IRS prevents intra-family financial transfers from being claimed as child care expenses.
Eligible providers include daycare centers, nursery schools, and after-school programs, but these must primarily serve a custodial function rather than an educational one. Private schools offering kindergarten or higher-grade instruction do not qualify, but preschools and daycare facilities that supervise children while parents work are eligible.
Income and Expense Considerations
The amount you can claim depends on adjusted gross income (AGI). The maximum allowable expenses for the Child and Dependent Care Credit are $3,000 for one child or $6,000 for two or more, with a percentage—ranging from 20% to 35%—eligible for the credit. Households earning over $43,000 can claim 20% of eligible expenses, while lower-income households may qualify for a higher percentage.
Employer-sponsored dependent care benefits, such as contributions to a Dependent Care Flexible Spending Account (FSA), also affect tax benefits. If you contribute pre-tax dollars to an FSA, reimbursed expenses cannot be claimed for the credit. For example, if you set aside $5,000 in an FSA and incur $6,000 in child care costs, only the remaining $1,000 is eligible for the credit.
Self-employed individuals cannot deduct child care costs as a business expense and must rely on the Child and Dependent Care Credit. Those with variable incomes should plan ahead, as estimated tax payments may need to account for child care-related deductions.
Coordination with Relevant Agencies
Claiming child care expenses may require interaction with agencies beyond the IRS. State licensing bodies oversee provider credentials, and taxpayers may need to verify a provider’s legal status to qualify for tax benefits. If a provider participates in a state subsidy program, additional reporting requirements may apply, particularly if they receive government reimbursements that affect the deductibility of out-of-pocket expenses.
Families receiving child care assistance through programs like the Child Care and Development Fund (CCDF) must determine which expenses remain eligible for tax credits. Some programs cover part of child care costs, leaving families responsible for co-payments. These co-payments may still qualify for the Child and Dependent Care Credit, but proper documentation is required to differentiate between subsidized and personally funded expenses.