Claiming Dependent Care Expenses

If your payment agreement was with the provider, then the amount you paid the provider is deductible in the tax year you actually paid it.

If you borrowed the $5K on a 5 year loan and used the borrowed money to pay the provider in full all in one shot, then the amount is fully deductible in the tax year you paid it.

I suspect your payment agreement was directly with the provider. That being the case, if it took you 5 years to pay the full amount due, it most likely would not make any difference on each year's tax return. The braces are a medical expense. Until the total of all of your medical expenses exceed 7% of your AGI, they can't be itemized. Then, the total of all of your itemized deductions has to exceed your standard deduction before they have any impact at all on your tax liability.

So while you "could" have claimed the amount each year it was paid, I seriously doubt it would have made any difference to your tax liability.

Now, in case you have other children that will be getting braces in their future, the best thing to do is to open an FSA or HSA account. (Flexible Spending account or Health Saving Account) . Money is deposited into your FSA from each paycheck and the deposit is a before-tax deduction from your taxable income.

so if  your paycheck is $1000 and you put $200 in the account, tax withholding is only figured on the remaining $800. The $200 is the FSA is "NOT" taxable income is not included in box 1 of your W-2.

Then, when you have a medical expense you pay it out of your pocket using money you have already paid taxes on. Then you send your receipts to the FSA account administrator and you get reimbursed from your FSA that 200 that you did "NOT" pay taxes on, and that reimbursement is "NOT" reportable on any tax return ever, as taxable income.

For me in dealing with braces with my kids my up front price was like, $3000. So I had $125  withheld from each twice a month paycheck and contributed to my FSA. That's exactly $3000. Did a 12 month payment agreement with the provider, Paid $250 per month, sent it the receipts and was reimbursed with a check in the mail. When I received a check, I signed it right over to the provider for the payment due, got my receipts, submitted to the FSA administrator and just started that round-robin again. So I paid $3000 for braces for my oldest and not only penny of that was taxable income to me, dispite the fact that I didn't have enough itemized deductions to itemize that year.

So I earned something like $45K of income that year, and only $43K was taxable and that's all that was reported to me on the W-2.

But you have to "work this". That's because any excess money in the FSA after the "use it by" deadline, goes back to the employers. You just "lose it". So if anything, underestimate your medical out of pocket expenses for the year and if you end up paying $50 or so out of your taxable income, so what? At least it won't be the $3000 that you've paid out of taxable income already.