School is out and that means it’s time for summer camp for the kids. Although summer camps can be expensive, whether it’s band, theatre, computer, or sports camp, the Child And Dependent Care Credit provides a welcome tax break for many parents!
If you are working and responsible for the cost of childcare, you qualify for the credit whether you pay for that care at home, at a daycare facility or at a summer day camp while school is out. Though the credit is geared toward working parents or guardians, taxpayers who were full-time students or who were unemployed for part of the year may also qualify as long as you were actively looking for work. Whether you are single and have no one to stay at home and babysit, or you and your spouse both work, you’ll qualify for the tax credit. So if you are among the parents considering a day camp for your child, here is the information you need regarding this credit.
What is the Child and Dependent Care Tax Credit?
This tax credit covers up to 35% of $3,000 spent on care for one child or up to $6,000 for the care costs two or more kids, depending on your income level. Children must be under the age of 13 years. Tax credits are more valuable than tax deductions! Tax credits reduce your tax bill dollar for dollar, so the tax savings add up quickly.
How do you figure your actual credit?
The actual tax credit you can get is a percent of those costs that is based on your adjusted gross income. The percentage of costs amount also is phased down as income increases. The maximum credit amount is 35% of your eligible camp and other child care costs throughout the year.
That translates to a maximum tax credit of $1,050 for care of one child or $2,100 for costs related to two or more youngsters. Taxpayers who make more than $43,000 can claim only 20% of their costs, or $600 for care of one child and $1,200 for two or more youngsters. And remember, the amount is a tax credit. That’s means it is a dollar-for-dollar reduction in what you owe Uncle Sam, however it is a nonrefundable credit.
What are the rules?
If you follow these to the letter – and keep good records – chances are that your child’s day camp program will be eligible.
- Day camp costs only are allowed. Summer school tutoring costs are not eligible, and neither are overnight camp expenses.
- Lost deposits from enrolling a child in camp or canceling won’t qualify.
- Camp, babysitting, or any other type of day care arranged for strictly personal reasons can’t be taken into consideration.
- If the cost of transportation to and from camp is included in the fees and the camp picks up and delivers your child, that will qualify for the credit.
- Your child or children must be under 13 years old and also must be your dependent.
- You must be working or looking for a job. If you’re married, that means you and your spouse have to be employed or seeking work. The only exception is when one spouse is either a full-time student or is physically or mentally incapable of self-care.
- If you have a child-care flexible spending account (FSA) as a workplace benefit, and use those funds to pay for day camp, you cannot then use camp costs to claim the child care credit. The IRS does not like double dipping.
- Keep good records! Hang on to those payment receipts for next tax season’s Form 2441, Child and Dependent Care Expenses. You must make payment for any camp (virtual or otherwise) to a real institution, or an individual providing the daycare. Their address, and either the social security number or the employer identification number must be included when filing. If the camp is provided by an individual with a license and/or certification your chances for claiming the credit are higher. View our previous article on tips for keeping records here.
Reach Out To Us: Remember every family is different, and the IRS has exceptions to the rules that allow a greater number of families to take advantage of the credit. The cost of a cook, housekeeper, maid, or cleaning person who provides care for your child may also be a qualified expense. Our TFG tax professionals can help with the necessary Form 2441, Child and Dependent Care Expenses. Let us help you identify other tax credits, deductions, and benefits you might be eligible for. Contact one of our tax specialists about your situation today at CPA@fuoco.com.
