Although the kids might still be in school for a few more weeks, summer day camp is rapidly approaching for many families. If yours is among them, did you know that sending your child to day camp might make you eligible for a tax credit?
The power of tax credits
Day camp (but not overnight camp) is a qualified expense under the child and dependent care credit, which is worth 20 percent of qualifying expenses (more if your adjusted gross income is less than $43,000), subject to a cap. For 2016, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.
Remember that tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — one dollar of tax credit saves you one dollar of taxes. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you are in the 28 percent tax bracket, one dollar of deduction saves you only 28 cents of taxes. So, it is important to take maximum advantage of the tax credits available to you.
Rules to be aware of
A qualifying child is generally a dependent under age 13. (There is no age limit if the dependent child is unable physically or mentally to care for him or herself.) Special rules apply if the child’s parents are divorced or separated or if the parents live apart.
Eligible costs for care must be work-related, which means that the child care is needed so that you can work or, if you are currently unemployed, look for work. However, if your employer offers a child and dependent care Flexible Spending Account (FSA) that you participate in, you cannot use expenses paid from or reimbursed by the FSA to claim the credit.
Are you eligible?
These are only some of the rules that apply to the child and dependent care credit. So, please contact us to determine whether you are eligible.