(This article and those that will follow are presented by me as an aid to the normal citizen in understanding some of today’s complex income tax regulations. I will present information that is readily available to each of you at the official web site of the IRS, but that is condensed and explained in common language so that you do not have to wade through the mire of the lengthy IRS publications in order to have an understanding of the information and the ability to plan properly. Many subjects, such as the one noted above, are the result of questions I have received. I hope that I can be of service.)
Summertime brings with it more than just warm weather and opportunities for outdoor activities with the family. The children are home from school. Parents who are working, unemployed and looking for work, attending school or disabled must find additional babysitters or day care, and these can come at a substantial increase in costs. So the question arises: Can Summer Day Camp Expenses Qualify for a Tax Credit just as other day care and babysitting costs? For example, can the expenses for a child attending a Soccer Camp, or Art Camp, qualify?
The IRS says, yes. However, in order to qualify, the expenses will have to be treated just as all of the other expenses that qualify for the Child and Dependent Care credit. That credit is available for all expenses incurred throughout the entire year for a child less than 13 years of age. The key here is that the camp must truly be a “day camp,” with no expense being incurred for overnight care. Expenses for overnight camps do not qualify.
Whether your childcare provider is a day care facility, a babysitter, or a nearby supervised camp, you can get some tax benefit by qualifying for the credit. That credit can be as much as 35 percent of your qualifying expenses, but the amount is subject to variation driven by your adjusted gross income. (The credit is reduced by 1% for each $2,000 in income over $15,000…but no lower than 20%) Generally, you can use up to $3,000 of unreimbursed expenses paid in the year for one qualifying child and $6,000 for two or more children to figure the credit.
Remember that you must meet all of the qualifications for the Child and Dependent Care credit. Basically, that means that the child must your dependent and under the age of thirteen and that you must: 1) have earned income, 2) must pay the expenses in order to work or look for work, 3) cannot make the payments to anyone who could be claimed as a dependent by you, and 4) you must identify the care provider on your tax form.
A final overlooked point on the subject: When there are two or more individuals qualifying for the credit, the expenses for each do not have to be divided equally between them. If, for example, two children qualify for the care but the provider only charges you $1,000 for the youngest one and you covered that cost with a tax deferred plan at your workplace, the child has no qualified expenses for the credit. However, the $6,000 expense limit can still be used even though the expenses were incurred by only one of the two children and will be reduced only by the $1,000 benefit already received.