Some day camps are starting to open, slowly and with lots of new rules and limitations. For those who’ve had enough family togetherness, are headed back to the office, and are fine with a camp’s enhanced Coronavirus protocols, there is no question that Uncle Sam might help pay some day camp costs. However if you are among the folks considering virtual camp to keep you kids safe while you continue to telecommute from home, how can you be sure it will be eligible for the tax credit in absence of guidance from the IRS? Here’s our advice on what you need to do.
First – what is the Child and Dependent Care Tax Credit?
This tax break covers up to $3,000 spent on care for one child or up to $6,000 for the care costs two or more kids. Children must be under the age of 13 years.
Second – 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 maximum of 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. With many folks losing at least a portion of their income to COVID-19 closures, the $43,000 income limit might not affect as many taxpayers. And remember, parents 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.
Third – what are the rules?
If you follow these to the letter – and keep good records – chances are that your child’s virtual/digital day camp program will be eligible. • Day camp costs only are allowed. Summer school tutoring costs are not eligible:
• 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’re still working from home because your employer hasn’t fully re-opened, that counts.
• 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 virtual camp is provided by an individual with a license and/or certification your chances for claiming the credit are higher.
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. Your Fuoco Group 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.
