What childcare or dependent expenses are considered tax deductible?What do I need to know about state-sponsored 529 plans to help save for college?Can I get a tax credit if my parent in law lives with me part of the year?

Hi @Palomarivero! The Child and Dependent Care Tax Credit reimburses up to 20% of costs for caring for a child or adult dependent. On your 2024 tax return, you can claim up to $3,000 for the cost of care for one qualifying person and $6,000 for care for two or more qualifying persons. Expenses paid for the care of a qualifying individual are eligible expenses if the primary reason for paying the expense is to assure the individual's well-being and protection. A qualifying individual for the child and dependent care credit is:Your dependent qualifying child who was under age 13 when the care was provided,Your spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year, orAn individual who was physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (a) was your dependent; or (b) could have been your dependent except that he or she received gross income of $4,700 or more, or filed a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer's 2023 return.This link will give you helpful information regarding 529 plans, which vary by state: Information on 529 PlansYou can claim a parent or another relative as a dependent. However, you and your parent or relative must meet all of these conditions:You can’t be someone else’s dependent, even if they don’t claim you as a dependent.Your parent or relative can’t file a joint return unless they’re only filing to get a refund.Your parent or relative must be one of these:U.S. citizenU.S. residentU.S. nationalResident of Canada or MexicoThe potential dependent must be one of these:Your parent, ancestor (ex: grandparent, great-grandparent), or sibling of either of themStepsibling, stepparent, parent-in-law, son- or daughter-in-law, or brother- or sister-in-lawAny person that lived with you for the entire year as a member of your household

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Palomarivero

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Questions about dependents and tax strategies.

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July 31, 2024
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What childcare or dependent expenses are considered tax deductible?
What do I need to know about state-sponsored 529 plans to help save for college?
Can I get a tax credit if my parent in law lives with me part of the year?

Ask the Experts - Dependents - July 2024

carolineb

Hi @Palomarivero!

The Child and Dependent Care Tax Credit reimburses up to 20% of costs for caring for a child or adult dependent. On your 2024 tax return, you can claim up to $3,000 for the cost of care for one qualifying person and $6,000 for care for two or more qualifying persons. Expenses paid for the care of a qualifying individual are eligible expenses if the primary reason for paying the expense is to assure the individual's well-being and protection.
A qualifying individual for the child and dependent care credit is:
- Your dependent qualifying child who was under age 13 when the care was provided,
- Your spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year, or
- An individual who was physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (a) was your dependent; or (b) could have been your dependent except that he or she received gross income of $4,700 or more, or filed a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer's 2023 return.
This link will give you helpful information regarding 529 plans, which vary by state:
Information on 529 Plans
You can claim a parent or another relative as a dependent. However, you and your parent or relative must meet all of these conditions:
- You can’t be someone else’s dependent, even if they don’t claim you as a dependent.
- Your parent or relative can’t file a joint return unless they’re only filing to get a refund.
- Your parent or relative must be one of these:
  - U.S. citizen
  - U.S. resident
  - U.S. national
  - Resident of Canada or Mexico
- The potential dependent must be one of these:
  - Your parent, ancestor (ex: grandparent, great-grandparent), or sibling of either of them
  - Stepsibling, stepparent, parent-in-law, son- or daughter-in-law, or brother- or sister-in-law
  - Any person that lived with you for the entire year as a member of your household

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FrankU201

Child care or dependent expenses that can be considered tax deductible typically fall under the Child and dependent care credit some of the key expenses that may qualify:

fees paid to daycare centers and nursery schools (as long as they provide care, not education, for the child).
Payment to nanny, babysitter, or housekeeper who provides care services in your home.
Cost of before and after school care programs (excluding the cost of schooling itself).
Fees for day camps that care for children while you work or look for work. No overnight camps.
Expenses for care provided to a disabled spouse or other dependent who lives with you and needs care while you work.

To claim the credit, you (and your spouse, if you're married) must have income earned from a job and you must have paid for the care so that you could work or look for work.
You can claim from 20% to 35% of your care expenses up to a maximum of $3,000 for one person, or $6,000 for two or more people (tax year 2023).

529 plans are a popular way to save for college as they may provide some tax advantages and flexibilities. There are two primary types of 529 plans:

college savings plans: investments in this plan grow tax-deferred and can be withdrawn tax-free for qualified education expenses. They typically offer a range of investment options, such as mutual funds and can be used at any eligible college or university.
Prepaid tuition plans: these plans allow you to purchase tuition credits at today's rates for future use. These plans are usually limited to in-state public college, but some plans have provisions for private and out-of-state colleges.

Contributions to 529 plans grow tax-deferred and can be withdrawn tax-free when used for qualified education expenses such as tuition and fees, room and board, books and supplies. Many states also offer deductions or credits on your state tax return for contributions to their 529 plans. Contributions are not deductible on your federal tax return.

To answer your last question, it is possible that your adult in-law qualifies you for an Other Dependent Tax Credit. For 2023, the maximum credit amount is $500 for each dependent who meets certain conditions. This credit can be claimed for:

Dependents of any age, including those who are age 18 or older.
Dependents who have Social Security numbers or Individual Taxpayer Identification numbers.
Dependent parents or other qualifying relatives supported by the taxpayer.
Dependents living with the taxpayer who aren't related to the taxpayer.

Keep in mind that the credit phases out after your income reaches a certain thresholds.