How does employer assistance for child care expenses affect the child-care credit?

Employer assistance for child care expenses directly impacts the total eligible expenses when calculating the child-care credit. Specifically, any contributions made by the employer towards child care must be subtracted from the total child care expenses incurred by the taxpayer.

This adjustment is necessary because the child-care credit is designed to provide a tax benefit based on out-of-pocket child care expenses incurred by the taxpayer. If the employer contributes to those expenses, it effectively reduces the amount that the taxpayer actually pays. Therefore, only the out-of-pocket expenses that exceed any employer contributions are eligible for the credit.

The rationale here is to prevent double-dipping, ensuring that taxpayers do not receive a credit for amounts that they did not actually pay themselves. By reducing the total child care expenses by the amounts paid by the employer, the calculation of the credit accurately reflects the taxpayer’s financial responsibility for child care expenses. This is essential for determining the correct amount of the credit that a taxpayer can claim on their tax return.