For many kids, heading off to camp is the highlight of their summer vacation but for parents it can mean a big out-of-pocket expense. Fortunately, there’s good news for some parents who pay for summer camp or daycare to keep kids occupied. These expenses may qualify you to receive a credit that could significantly lower your tax bill.
How the Child and Dependent Care Credit Works
The Child and Dependent Care Credit is designed for taxpayers who are responsible for paying expenses towards the care of a child or a disabled dependent. The credit effectively reduces the amount of federal income tax you owe, which could add up to big savings at tax time. The amount of the credit varies based on your earned income and the amount of child or dependent care expenses you pay.
Who Qualifies for the Credit
The Child and Dependent Care Credit is available to taxpayers with a filing status of single, head of household, married filing jointly or qualifying widow. The IRS requires taxpayers to meet several key criteria to qualify for the child and dependent care credit. As of 2013, the following guidelines apply:
- You must have earned income. This applies to you and your spouse if you’re married and file jointly.
- You must be the custodial parent or legal guardian of the child or dependent you’re claiming the credit for.
- Your child or dependent must be under age 13 unless they’re disabled and incapable of caring for themselves.
- Your qualifying dependent must have lived you with for more than half the year.
- You paid expenses for child or dependent care so that you could work or look for work.
- The person you paid the childcare expenses to can’t be your spouse or your spouse’s parent.
There are some exceptions that would allow families that don’t meet these specific criteria to claim the credit. For example, if your spouse attended college full-time for at least five months out of the year, the IRS counts this as earned income even. If your spouse is disabled, the IRS waives the earned income requirement completely.
Claiming the Credit for Summer Camp
If you’re planning on claiming the credit for your child’s daycare or camp expenses this summer, there are a few things the IRS wants you to know. First, the credit doesn’t apply if you’re sending your child to an overnight camp facility. This means that if your son or daughter is staying away from home as part of their summer camp experience, you won’t be able to get credit for any of those costs. Second, the credit is good for up to 35 percent of your qualifying expenses and your individual amount will be based on your income. Finally, you’re limited to $3,000 in unreimbursed expenses per year per child or $6,000 for two or more qualifying dependents.
While summer camp can be an exciting experience for kids, it could be a financial headache for mom and dad. If you’re planning to send your child off to camp this summer, it pays to know about the potential tax savings you can take advantage of. For more information about claiming the Child and Dependent Care Credit for your child’s summer camp expenses, take a look at Publication 503 on the IRS website.