Can I include preschool registration fees and security deposit fees in my total dependent care expenses?

[MichaelL1 · Accepted solution]

The registration fees can be included, and the security deposit can also be included as long as care was provided (if you put a deposit down and then did not enroll your child that cannot be deducted). If you get the security deposit back in a later year, it would have to reduce the day care expenses for that year. 

Fees and deposits.   Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they aren't directly for care. However, a forfeited deposit isn't for the care of a qualifying person if care isn't provided.

Source:  IRS Publication 503, https://www.irs.gov/publications/p503/ar02.html

[ncsu201]

I have a twist to add to this question. Is there any way to claim a credit for childcare costs incurred in the year before the child was born? In our area daycares are very competitive often requiring that you pay a deposit to secure a spot up to a year or more before you'd actually like for your child to start. This means, in our case, that we've already paid a significant amount for child care in 2020 for a child that won't actually be born until 2021. The trouble is it doesn't seem like there's any way to claim a credit for this cost without having a dependent to attribute the cost to, which we obviously won't have until the child is born.

[JohnW152]

@ncsu201

You can’t claim these expenses in the year before your child was born.

However… you can claim child care expenses that have been pre-paid, but only in the year the child care is provided.  In your case, you’ll claim the expenses on your 2021 (i.e., next year’s) return.

The IRS states in Publication 503, Child and Dependent Care Expenses that

If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received.  Claim the expenses for the later year as if they were actually paid in that later year.  [Bolding mine.]

[ncsu201]

Thanks! What about the portion of the payment that was an application fee? Still a significant amount worth claiming but, unlike the deposit, technically not a pre-payment for any services that will be rendered at a later time. As I understand it application fees are normally able to be claimed, but in our case do we just miss out on claiming the application fee since it was paid in a year prior to the child being born?

[KrisD15]

Yes, it would be considered for the same reasons. Pre-paid and used the year of birth. 

According to the IRS: 

“Fees and deposits. Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they aren't directly for care.”

[kbstunna]

I also have a twist to this topic.  We prepaid child care expenses in October of 2023 since our area is also very competitive.  The contract does say non refundable, but unfortunately the wonderful lady we had set up to provide care for our child passed away unexpectedly in early February of 2024.  Would this be deductible for 2023 expenses or would we wait until next year even though our child didn't receive care from her?  Or is there a way to get our money back from the state or something?

[MonikaK1]

Child care expenses are only deductible/eligible for credit in the year the care was provided. A forfeited deposit, even for reasons beyond your control, isn't for care, and therefore not eligible for the credit. Depending on the terms of the contract, you may be able to pursue a refund.

From IRS Publication 503:

Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they aren't directly for care. However, a forfeited deposit isn't for the care of a qualifying person if care isn't provided.

Example 1.

You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. The fee you paid is a work-related expense.

Example 2.

You placed a deposit with a preschool to reserve a place for your 3-year-old child. You later sent your child to a different preschool and forfeited the deposit. The forfeited deposit isn't for care and therefore not a work-related expense.

Child and dependent care expenses must be work-related to qualify for the credit. Expenses are considered work-related only if both of the following are true:

• They allow you (and your spouse if filing jointly) to work or look for work.
• They are for a qualifying person's care.

Please see this TurboTax article and this IRS webpage (Publication 503) for more information.