I'm self employed and I 1099 someone on my Schedule C. This person also happens to watch my kids as daycare, can I double dip the expense?

Question

I am self employed and I have a worker that I issue a 1099. This person helps me around and picks up my kids and watch them as childcare service. I know I can deduct the 1099 income as an expense on my Schedule C but can I also use the same expense and claim the dependent care tax credit too?

Answer 1

First, a note: I don't know whether it is proper or not for you to deduct child care expenses as part of your business expenses on your Schedule C. However, since you aren't asking about that, the rest of this answer assumes that you are doing that properly:

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In short, no, you cannot use the same expenses toward the Child and Dependent Care Tax Credit that you have also deducted as business expenses.

Under normal circumstances for 2022 you can claim up to $3000 of expenses toward this credit if you have one qualifying child, or up to $6000 of expenses if you have two or more qualifying children. However, any amount that is excluded from your income by your employer toward the paying of child expenses reduces the amount that you can claim toward your Child and Dependent Care Tax Credit. Because you are self-employed, your Schedule C business is your employer, so if you have more than one qualifying child, and you are deducting more than $6000 of child care expenses on your Schedule C, you cannot claim any expenses toward the Tax Credit.

The details on the Child and Dependent Care Tax Credit are found in IRS Publication 503, and the tax credit is calculated on IRS Form 2441. Examples of how the reduction of expense limits are affected by employer contributions are found here in Publication 503.