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Tax Facts about Summertime Child Care Expenses

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Article Highlights:

  • Day Camps
  • Overnight Camps or Tutoring
  • School Expenses
  • In-Home Care
  • Credit Percentages
  • Maximum Qualifying Expenses
  • Recordkeeping Requirements
  • State Tax Credit

Many parents who work or are looking for work must arrange for care of their children during school vacations.  If you are one of those, and your children requiring care are under 13 years of age, you may qualify for a tax credit that can reduce your federal income taxes.

Here are some facts you need to know about the tax credit available for child care expenses.  The Child and Dependent Care Credit is available for expenses incurred during the lazy, hazy days of summer and throughout the rest of the year.  You must claim the qualifying child for whom you pay care expenses as your dependent in order to qualify to claim the credit (but there is an exception for divorced or separated parents).

  1. Day Camps – The costs of day camp generally count as expenses towards the child and dependent care credit.  A day camp or similar program may qualify, even if the camp specializes in a particular activity, such as soccer or computers.  The rule that a dependent care center must comply with applicable state and local laws also applies to a day camp where more than six persons are cared for in return for a fee. 
  2. Overnight Camp or Tutoring – No portion of the cost of an overnight camp or a tutoring program is a qualified expense.
  3. School Expenses – Only school expenses for a child below the level of kindergarten will qualify for the credit.  But expenses paid for before- and after-school care of a child in kindergarten or a higher grade are eligible.
  1. Day Care Facility – The expenses paid to the day care center qualify.  If the day care center cares for more than six persons, it must comply with applicable state and local laws.
  2. In-Home Care – If your childcare provider is a “sitter” at your home, the sitter is considered your employee, and you may need to pay payroll taxes and file payroll returns.
  3. Credit Percentage – The actual credit can be between 20 and 35 percent of your qualifying expenses, depending upon your income.  The higher your income, the lower the credit percentage.
  4. Maximum Qualifying Expenses – You may use up to $3,000 of the unreimbursed expenses paid in a year for one qualifying individual or $6,000 for two or more qualifying individuals to figure the credit.  This will provide a tax credit of between $600 and $1,050 for one child and $1,200 and $2,100 for two or more, depending upon your income.  If the expenses exceed your work earnings, use the earnings to figure the credit.  Dependent care benefits received through your employer will also affect the computation of the credit and could result in no credit being allowed.
  5. Records Required – To claim the credit on your tax return, you will need to provide the care provider’s name, address and tax ID number.  No credit is allowed without that information, except the tax ID number is not needed if the provider is a tax-exempt organization such as a church or school. You may run across care providers who are reluctant to provide their ID numbers because they don’t plan on reporting their income and paying their taxes.  Just remember, without the ID number, you cannot claim the credit.  Be sure to obtain the required information before you pay the provider.

If you paid work-related expenses for the care of two or more qualifying persons, the expense dollar limit is $6,000.  This $6,000 limit does not need to be divided equally among them.  For example, if your work-related expenses for the care of one child are $3,200 and your work-related expenses for another child are $2,800, you can use the total, $6,000, when figuring the credit.

  1. State Child Care Credit – Some states also allow a similar credit on the state income tax return.  If your state is one of those, additional information, such as the care provider’s phone number, may be required.

This credit is also available if you are filing a joint return and need to pay for care for your child while you work and your spouse is a full-time student.  You can also claim this credit if you are working and care for a spouse that is physically or mentally incapable of self-care.

For more information about how this credit will affect your particular circumstances, or for information about claiming this credit for your spouse or a dependent age 13 or over who is not able to care for himself or herself, please call this office.