Send your kids to day camp and give yourself a (tax) break

Now that school is out, and your kids need something to do, sending them to day camp could be beneficial to everyone. Child care during the summer can be a large expense for most families. However, you could be eligible for a tax break while your kids are enjoying fun activities.

The benefit

Under the child and dependent care credit, day camp counts as a qualified expense. It’s worth 20-35% of qualifying expenses, within a certain dollar amount.

Tax credits are valuable to many people because they reduce tax liability dollar-for-dollar, which differs from deductions. Deductions reduce your taxable income.

The IRS has allowed $3,000 to be the maximum credit for one child, and $6,000 for two or more children. Day camp isn’t the only qualified expense under the credit though. Daycare centers, nursery schools, and a nanny also count. However, sleep-away camp does not count towards this credit.

How does the child and dependent care credit work?

For you to qualify for this credit, and the expenses that you incur, it must be related to employment. For example, it must help you work, or look for work. The service that you are employing must also be for the care of your child or qualifying dependent/relative under age 13, the child must live with you for more than half the year, and meet other various requirements set forth by the IRS.

However, there’s no age limit in place if your child/dependent is physically or mentally handicapped. There are also different exceptions if the dependents’ parents are divorced or separated.

What are the limitations to claim the child and dependent care credit?

You cannot participate if you are a part of your employer’s Flexible Spending Account (FSA). You also can’t use reimbursements or expenses related to said account to claim the credit.

If an FSA is offered, you may want to consider taking part in it, instead of the credit. You could contribute up to $5,000 before taxes are taken out. It would reduce your income and take the funds and put it into the FSA, instead of you paying for medical and child care expenses out of pocket. The credit is limited to 20% for taxpayers with adjusted gross income over $43,000, and the FSA gives a benefit at the highest tax rate.

Am I eligible for the child and dependent care credit?

You must include the Social Security Number (SSN) of each individual child that went to camp, or received care. You also have to list the names, addresses, taxpayer ID’s of the organizations or persons that provided care.

There are more rules that could apply to certain situations regarding daily child care. If you have any questions or concerns, feel free to contact your tax advisor.