Can grandparents take a deduction for paying the preschool tuition when the child still lives with the parents?
-Dortha, CO
Dear Dortha,
Thank you for your question regarding whether the grandparents of a child can deduct the cost of preschool tuition, when the child is still living with their parents.
As my coworker, Steve Banner, pointed out in an earlier blog, the cost of preschool tuition may qualify you for a tax benefit. While these expenses cannot be used as a tax deduction, they can be used to calculate a tax credit, if you qualify. And generally, tax credits yield a greater tax benefit than tax deductions do since they result in a dollar-for-dollar decrease in your tax liability. Preschool tuition is an allowable cost used to calculate the Child and Dependent Care Expenses credit. The Child and Dependent Care Expenses credit was designed to help working families offset the cost of child care so that both taxpayers could work or attend school.
While this credit was greatly enhanced for 2021, as I explained in my own blog, those enhancements have expired for the 2022 and subsequent tax years. So the maximum amount of expenses that can now be claimed to compute the credit is $3,000 per qualifying person, up to a maximum of two qualifying persons. The maximum amount of qualifying expenses a person can claim if they have two or more qualifying persons is $6,000. This is true even if a taxpayer has two or more qualifying children, but only one of them had qualifying expenses, or one had less than $3,000 but the other child had more than $3,000. The credit itself is then calculated on a sliding scale based on the taxpayer’s adjusted gross income, ranging from 20% to 35%. The higher the adjusted gross income goes, the lower the credit goes, but it will never go below 20% of the eligible expenses, or $600 for one qualifying person, or $1,200 for two qualifying persons.
So would your grandchild be a qualifying person for you to claim this credit? To be a qualifying person for the Child and Dependent Care Expenses credit, the person must meet one of the following qualifications:
- Be your qualifying child under the age of 13 whom you can claim as a dependent.
- Be your disabled spouse who isn’t physically or mentally capable of caring for themselves and who lived with you more than one-half of the year.
- Be a disabled person who isn’t physically or mentally capable of caring for themselves and who lived with you more than one-half of the year, and whom you can claim as a dependent OR could claim as a dependent except that they had gross income of $4,400 or more, or they filed a joint return, or you or your spouse (if filing jointly) could be claimed as a dependent on another taxpayer’s return.
While a grandchild could potentially be your qualifying child, you mentioned that the grandchild was living with their parents, and do not appear to be living with you. As such, the grandchild is the qualifying child of his or her parents, and cannot be your qualifying child. The determination of who can claim a child as a qualifying child can be very tricky, however, and even a slight change in facts can change the determination of which taxpayers can claim a child. For example, if the child lived with you and the parents also lived with you, the child might be the qualifying child of both you, as grandparents, and also the child’s parents. Who would be able to claim the child would be determined under the “tie-breaker” rules, and under those rules the parents have priority over grandparents, as long as all are living in the same household. That might change if the parents are not working and are also your dependents. Likewise, if you were the legal guardians of the child and the child was living only temporarily with the parents, this might change the facts and circumstances enough for you to claim the child as a dependent. In general, though, you must be able to claim the child or disabled person as a dependent on your return to claim this credit.
We hope this answers your question.
Sincerely,
Carolyn Richardson, EA, MBA