KPM

Bartering Without Cash Transactions Spouse Travel Expenses Tax Efficiency Starting A Business As A Sole Proprietor Employee Retention Tax Credit Emergency Savings Accounts QSBC Advantage Green Tax Reform Employees Receive Tips Selling Commercial Or Investment Real Estate Standard Business Mileage Rate EV Reporting Requirements Section 174 Tax Calendar Tax Breaks Company Vehicle Benefits Tax Strategies for Financial Success 2023 Tax Bill 2024 Inflation-Adjusted Tax Parameters For Small Businesses Cost Segregation Study Business Entity Per Diem Business Travel Rates Social Security Wage Base Tax Depreciation Rules Work Business Expense Deductions Deadline TAx Tax issues Depreciating Business Assets Loan Guarantees LLC Tax-Saving S corporation Handling Expenses On Your Tax Return

If Your Kids Are Off To Day Camp, You May Be Eligible For A Tax Break

Now that most schools are out for the summer, you might be sending your children to day camp. It is often a significant expense. The good news: you might be eligible for a tax break for the cost.

The value of a credit

Day camp is a qualified expense under the child and dependent care credit, which is worth 20 to 35 percent of qualifying expenses, subject to a cap. Note: sleep-away camp does not qualify.

For 2019, the maximum expenses is $3,000 for one qualifying child and $6,000 for two or more. Other expenses eligible for the credit include payments to a daycare center, nanny, or nursery school.

Keep in mind that tax credits are especially valuable because they reduce your tax liability dollar-for-dollar — $1 of tax credit saves you $1 of taxes. This differs from deductions, which simply reduce the amount of income subject to tax.

For example, if you are in the 32 percent tax bracket, $1 of deduction saves you only $0.32 of taxes. So, it is important to take advantage of all tax credits available to you.

Work-related expenses

For an expense to qualify for the credit, it must be related to employment. In other words, it must enable you to work — or look for work if you are unemployed. It also must be for the care of your child, stepchild, foster child, or other qualifying relative who is under age 13, lives in your home for more than half the year, and meets other requirements.

There is no age limit if the dependent child is physically or mentally unable to care for themselves. Special rules apply if the child’s parents are divorced or separated or if the parents live apart.

Credit vs. Flexible Spending Account (FSA)

If you participate in an employer-sponsored child and dependent care FSA, you cannot use expenses paid from or reimbursed by the FSA to claim the credit.

If your employer offers a child and dependent care FSA, you may wish to consider participating in the FSA instead of taking the credit. With an FSA for child and dependent care, you can contribute up to $5,000 on a pretax basis. If your marginal tax rate is more than 15 percent, participating in the FSA is more beneficial than taking the credit. That is because the exclusion from income under the FSA gives a tax benefit at your highest tax rate, while the credit rate for taxpayers with adjusted gross income more than $43,000 is limited to 20 percent.

Proving your eligibility

On your tax return, you must include the Social Security number of each child who attended the camp or received care. There is no credit without it. You also must identify the organizations or persons that provided care for your child. So, make sure to obtain the name, address, and taxpayer identification number of the camp.

Additional rules apply to the child and dependent care credit. Contact us if you have questions. We can help determine your eligibility for the credit and other tax breaks for parents.

Related Articles

Talk with the pros

Our CPAs and advisors are a great resource if you’re ready to learn even more.