NASE Blogs

Deducting Child Care Expenses

Dec 02, 2009
Q: I’m self-employed and have a corporation. I work out of my home. If I pay someone to come to the house to watch my son during workdays, can I deduct the cost as a business expense?

A: Unfortunately, this is one area where being self-employed is less advantageous than being a corporate employee.

Employers generally pay for employee child care through a cafeteria benefit plan. The cafeteria plan must file an annual report with the IRS and can’t provide more than 25 percent of the benefits to highly compensated or key employees.

Based on the information you provided, the cafeteria plan is not a possibility for you. However, a portion of your child care costs can be deducted through the Child Care Credit on your personal tax return.

If you decide to hire a domestic worker to care for your child, you need to know the rules. Get IRS Publication 503, Child and Dependent Care Expenses. You can download the publication for free from the IRS Web site at www.irs.gov.