GETTING READY FOR SUMMER - SUMMER DAY CAMP AND THE CHILD CARE CREDIT

It won’t be long now before school will be out for the summer.

Do you have a dependent child, or children, under age 13?  Do you and your spouse both work, or are you a single working parent?

If you answered yes to both questions you may be able to claim a Child and Dependent Care Credit for the cost of summer day care for your child(ren).

The cost of sending your dependent child, who is under age 13, to a summer day camp is eligible for the Credit for Child and Dependent Care Expenses. Day camp expenses qualify even if even if the camp specializes in a particular activity, such as computers or soccer.

However only day camp expenses qualify for the credit – the cost of an overnight camp does not qualify.

If you have one qualifying child you can claim the credit on up to $3,000 in expenses. For two or more qualifying children the maximum is $6,000. The amount of expenses eligible for the credit it further limited to earned income of the parent – in the case of two working parents it is the lesser of the two incomes. If one spouse earned $50,000 for the year and the other $2,500, only $2,500 of expenses are eligible for the credit.

If one spouse works and the other is disabled or a full-time student the non-working spouse is “deemed” to earn $250 per month is there is one child or $500 per month is there is more than one. This applies to only one spouse per month. If both spouses are full-time students during the same month, only one is “deemed” to earn the $250 or $500.

In most cases if you are married you must file a joint return to claim the credit.

You can claim the credit on expenses you have incurred up to the child's 13th birthday. If your child will turn 13 this November you can still claim the credit on any day camp expenses incurred during the summer.

It is important that you get the federal Employer Identification Number of the Day Camp if it is a “for-profit” business. You must report this number on Form 2441 – the form used to claim the credit.  The IRS will disallow the credit if you do not include an ID number.

But the IRS tells us, “You do not have to show the taxpayer identification number if the care provider is one of certain tax-exempt organizations (such as a church or school). In this case, enter ‘Tax-Exempt’ in the space where the tax form calls for the number.”  

Day camp expenses also qualify for reimbursement under an employer-sponsored “pre-tax” Dependent Care Benefit “flexible spending account” (FSA). Generally the tax credit is 20%. If you are in the 25% or 28% bracket you will get a greater tax benefit by running your child care expenses through an FSA than if you claim the credit.

TTFN