Are grandparents allowed any deductions on their taxes if they pay for the grandchildrens daycare? $6000 yr?

Question

Thanks in advance. I believe we could get some tax break for paying for grandchilds daycare of about $6000 a year? Maybe even a gift? State of Michigan.

Answer 1

This would only be deductible for the grandparents if the children lived with and were dependents of the grandparents.

While you can give gifts to anyone you want to, a gift can NOT be deducted on your taxes unless it's to a recognized charity and is deductible as a charitable contribution.

Answer 2

In order to qualify for the Dependent Care Credit, you must have paid qualifying care expenses so that YOU could work or look for work. There are other qualifications that must be met but if you simply paid the daycare costs on belalf of the children's parents you are not eligible to claim the credit.

The amount you paid is treated as a gift to the parents. If it exceeds the annual Gift Tax exclusion amount, you would be required to file a Gift Tax return and pay any Gift Tax yourself since Gift Tax is levied on the donor, not the recipient. Since the amount involved is less than the 2006 Gift Tax exclusion amount ($12k per recipient for each donor) there is no need to file a Gift Tax return.

That is the Federal treatment. MI may treat it differently. If MI has a Gift Tax with a lower exclusion amount you could still owe MI Gift Tax.