A SUMMER RERUN - SUMMER DAY CAMP AND THE CHILD CARE CREDIT

Here is a timely updated “summer rerun” of a post from the past

If you and your spouse both work, or if you are a working single parent, the cost of sending your dependent child (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.

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.  However, the IRS says –

“If your filing status is married filing separately and all of the following apply, you are considered unmarried for purposes of claiming the credit on Form 2441.

You lived apart from your spouse during the last 6 months of 2017.

Your home was the qualifying person's main home for more than half of {the year}.

You paid more than half of the cost of keeping up that home for {the year}.”

 
The credit is allowed for a dependent child who is under age 13. You can claim the credit on expenses incurred up to the child’s 13th birthday. If your son turns 13 in November you can still claim the credit on day camp expenses incurred during the summer.

The expenses must be incurred to allow you to work or actively look for work.  

 
Be sure to get the federal Employer Identification Number of the Day Camp if it is a “for-profit” business.  You must report this number on the Form 2441 - the IRS will disallow the credit if you do not include an ID number. However, according to the IRS, “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 22% or higher bracket you will get a greater tax benefit by running your child care expenses through an FSA than if you claim the credit.

IRS Publication 503 (Child and Dependent Care Expenses) provides all the rules for details on claiming this credit.  The GOP Tax Act does not change any of these rules.

Update for NJ taxpayers –

I recently learned that New Jersey now has a Child Care Credit that will be available on the 2018 NJ-1040.  Here is the word from the NJ Division of Taxation website –

“The credit will reduce the amount of New Jersey Gross Income Tax a taxpayer owes, but won’t result in a refund if no taxes are owed. Taxpayers may be able to claim the New Jersey Child and Dependent Care Credit if they:

Paid expenses for the care of one or more qualifying individuals so that they are able to work or actively look for work;

Are allowed the federal child and dependent care credit; and

Have New Jersey taxable income of $60,000 or less.

The amount of the New Jersey credit is a percentage of the taxpayer’s federal child and dependent care credit and varies according to the amount of the taxpayer’s New Jersey taxable income.

If NJ taxable income is:                         Amount of the NJ credit is:

Not over $20,000                                   50% of federal credit

over $20,000 but not over $30,000        40% of federal credit

over $30,000 but not over $40,000        30% of federal credit

over $40,000 but not over $50,000        20% of federal credit

over $50,000 but not over $60,000        10% of federal credit

The maximum New Jersey credit cannot exceed $500 for one qualifying individual or $1,000 for two or more qualifying individuals.”

Any questions?

TTFN