Summer break is here, and parents are lining up activities for their kids to enjoy while school is out. If you plan on sending your child to day camp, you may qualify for a valuable tax break – the child and dependent care credit.
It’s important to note that to qualify as an expense under the child and dependent care tax credit, you must choose day camp options over overnight camps. The credit is worth 20% of qualifying expenses (more if your adjusted gross income is less than $43,000) and is subject to a cap. For 2019, the maximum expenses allowed for the credit are $3,000 for one qualifying child and $6,000 for two or more.
To take maximum advantage of the tax credits available to you, remember that tax credits are valuable because they reduce your tax liability dollar-for-dollar. This differs from deductions, which simply reduce the amount of income subject to tax. For example, if you’re in the 24% tax bracket, $1 of deduction saves you only $0.24 of taxes.
How to Qualify
A qualifying child is generally a dependent under age 13, and 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.
To be eligible, the costs must be “work-related”, meaning that the child care is needed so that you can work or, if you’re currently unemployed, look for work.
If you participate in an employer-sponsored child and dependent care Flexible Spending Account (FSA), also sometimes referred to as a Dependent Care Assistance Program, you are unable to use expenses paid from or reimbursed by the FSA to claim the credit.
Additional rules apply to the child and dependent care credit. If you’re not sure whether you’re eligible, contact us. We can assist you in determining your eligibility for this credit and other tax breaks for parents.