Are Preschool Expenses Tax Deductible?

Are Preschool Expenses Tax Deductible - Montessori West

For many parents, preschool is an investment in their children’s development — and quite an expensive one. A Montessori preschool can set a family back over $1,000 per month. 

One way that parents might offset these costs is through a tax deduction. But are preschool expenses tax deductible? Here’s an overview of how tax laws work for preschools in California.

Can I Deduct Preschool Expenses From My Income Taxes?

Unfortunately, parents are not permitted to directly deduct preschool expenses from their income taxes. However, parents can indirectly reduce their tax bill through the Child and Dependent Care Credit (CDCC). In fact, this credit can potentially reduce your tax liability to zero, though it can’t offer any refunds beyond that.

What’s the difference between a credit and a deduction? A deduction lowers your total tax bill, which means you’ll only pay taxes on a portion of your total annual income. A credit reduces your tax bill on a dollar-for-dollar basis, which is typically better for those who qualify.

Am I Eligible for the CDCC?

To be eligible for the CDCC, you must meet the following requirements:

  • You must have lived in the U.S. for at least half of the year
  • Preschool expenses must be less than your income
  • Preschool expenses must be incurred to assist you in looking for work
  • Preschool expenses must be for a dependent child under age 13

As you can see, these qualifications will cover parents looking for preschool opportunities. However, they are designed to aid those who use preschool as a way to get into the workforce.

So if you’ve pursued a Montessori preschool so that you or your spouse can either work or look for a job, the CDCC may be able to reduce your tax burden.

How Much Is the CDCC Worth?

For the 2023 tax year, the CDCC can provide a maximum of $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals. You’ll receive a percentage of your preschool expenses as a credit. The CDCC offers coverage between 20% and 35%, though the exact amount depends on your adjusted gross income.

However, keep in mind that tax laws can change from year to year. If you want to use the CDCC, you may need to check for changes and updates that can affect how much you receive and how your income can change the coverage amount.

How to Apply for the CDCC

If you believe you meet the qualification requirements listed above, you can claim the CDCC for your corresponding tax year. To do so, simply complete the following steps:

  • Fill out Form 3506
  • Attach Form 3506 to Form 1040 when filing your tax return
  • Include the preschool’s name, address, and taxpayer identification number (TIN) 

If you’re unsure about the preschool’s taxpayer identification number, simply contact the school’s administration for assistance. And the IRS offers instructions on how to complete Form 3506 so you can claim the CDCC. 

Keep an eye out for additional correspondence from the IRS. The department may request additional information from you or notify you of your eligibility/ineligibility for the CDCC.

Choosing the Right Preschool

While the CDCC is aimed at parents who use preschool so that they can work, early education is a sound investment in your child’s future. Montessori West provides a rich, dynamic learning environment for children aged 18 months to 14 years. Our preschool education offers a secure foundation for the journey ahead. Contact our staff today to explore options for your little one.

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