Can A Company Deduct Daycare Costs?

If eligible, your business can provide up to $5,000 in childcare assistance to each employee and exclude it from their taxable wages reported on Form W-2. An LLC or S Corp can pay up to $5,250 for the 2023 tax year, including tuition and education expenses. If you pay for childcare for a child under 13, you could claim a tax credit.

When self-employed and report this income on an IRS Schedule C, the Net Income (i.e., the income remaining after deducting expenses) from the income is deducted. Employers should complete Form 8882, Credit for Employer-Provided Child Care Facilities and Services, to claim the credit for qualified child care facility and services. The Employer-Provided Childcare Credit offers employers a tax credit up to $150,000 per year to offset 25 of qualified childcare facility expenditures and 10 of taxable wage income.

As an S-Corp owner, you may be eligible for the best tax deductions for S Corps. As an S-Corp owner, you have the option of hiring your children to perform various duties for the company, such as handling the company’s social media accounts. Paying your children can decrease the cost of childcare.

The IRS contested the child care deduction, asserting that the corporation should get the deduction under revenue ruling 73-348. However, there is no direct relationship between the S corporation and its sole shareholder’s preschool children. An accountable plan can help maximize tax deductions for your childcare S-corp. After-school care and summer day camps qualify for the Child and Dependent Care Credit, but overnight camps do not.