Nannies As Childcare

• Since a nanny normally provides childcare services to young children, some of those services may be deductible on your federal income tax return. The childcare tax deduction allows you to deduct some of your expenses for childcare given to children under the age of 13. The childcare tax deduction only applies to actual childcare given, thus the nanny agency fees are not likely to be eligible for the tax deduction.
  
  

Childcare For Working

• The childcare tax deduction can only be taken for the amount of time your nanny provided care while you were working or looking for work. If you're married and filing jointly, the time both you and your spouse spent working or looking for work counts towards the deduction, or one of you could have been a full-time student instead. If your child's nanny watches him while you are not working but away on personal errands, that childcare time cannot be counted towards the childcare tax deduction.
  
  

Provider Qualifications

• To claim the childcare tax deduction, you must provide the IRS with the name, address and social security number of your child's nanny. The nanny cannot be your dependent or another of your children under the age of 19 who is not your dependent on your federal income tax return. You may not take the tax deduction if your child's nanny is also his parent or your spouse.
  
  

Deduction Limitations

• You must have a source of earned income such as earnings from a job or self-employment. You may claim up to $3,000 in work-related childcare expenses for one child, or $6,000 for two or more. The actual deduction you receive for childcare is 20 to 35 percent of your claimed childcare expenses, based on your adjusted gross income.