Sending the Kids to Day Camp May Bring a Tax Break

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Among the many challenges of parenthood is childcare for kids when school lets out. Babysitters are one option, or you might consider sending them to a day camp. There’s no one-size-fits-all answer, but if you do choose a day camp, you could be eligible for a tax break. (Unfortunately, overnight camps don’t qualify.)

Dollar-for-dollar Savings

Day camp can be a qualified expense under the child and dependent care tax credit. The credit is worth 20% to 35% of the qualifying costs, subject to an income cap. The maximum amount of expenses that can be claimed is $3,000 for one qualifying child or $6,000 for two or more children, multiplied by the percentage that applies to your income level.

For those qualifying for the 35% rate with maximum expenses of $3,000, the credit equals $1,050, or $2,100 for two children with expenses of at least $6,000. The applicable credit percentage drops as adjusted gross income (AGI) rises. When AGI exceeds $43,000, the percentage is 20% of qualified expenses, subject to the $3,000 or $6,000 limit.

Tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar, that is, $1 of tax credit saves $1 of taxes. This is compared to deductions, which simply reduce the amount of income subject to tax. So, if you’re in the 24% tax bracket, a $1 deduction saves you only $0.24 of taxes.

Qualifying for the Credit

Only dependents under age 13 generally qualify. However, the credit may also be claimed for expenses paid to care for a dependent relative, such as an in-law or parent, who is incapable of self-care. Eligible care costs are those incurred while you work or look for work.

Expenses paid from, or reimbursed by, an employer-sponsored Flexible Spending Account can’t be used to claim the credit. The same is true for a dependent care assistance program.

Determining Eligibility

Additional rules apply to this credit. Contact the office if you have questions about your eligibility for the credit and the exceptions.

408-252-1800

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Kids’ Day Camp Expenses May Qualify for a Tax Credit

Day camps are common during school vacations and the summer months. And their cost may count towards the child and dependent care credit.

Here are five things parents should know:

1. Care for Qualifying Persons: You may qualify for the credit whether you pay for care at home, at a daycare facility, or a day camp. Your expenses must be for the care of one or more qualifying persons, such as your dependent child under age 13.

2. Work-Related Expense: In other words, you must be paying for the care so you can work or look for work.

3. Expense Limits: The total expense you can claim in a year is limited. The limit is generally $3,000 for one qualifying person or $6,000 for two or more.

4. Credit Amount: The credit is worth between 20 and 35 percent of your allowable expenses. The percentage depends on your income.

5. Excluded Care: Certain types of care don’t qualify for the credit, including:

  • Overnight camps,
  • Summer school tutoring,
  • Care provided by your spouse or child under age 19 at the end of the year, and
  • Care given by a person you can claim as your dependent.

Remember that this credit is not just a school vacation or summer tax benefit. You may be able to claim it at any time during the year for qualifying care. For more information, please call the office.

San Jose: (408) 252-1800

Watsonville: (831) 726-8500