Are You Eligible for Summer Camp and Daycare Tax Credits?

Daycare and summer camp are two of the main drivers of spending on children under the age of 13 in the United States. According to the American Camp Association, there are more than 14,000 day camps and overnight camps in the U.S., with over 14 million kids and adults attending at their last count in 2013. Over 5 million children under the age of five are in some form of childcare.

Daycare has become the mainstay of the dual-working-parent household and can cost anywhere from $5,000 to $22,000 annually. Camp can cost an average of $314 per week per child just for day camp. Overnight camp is twice as much. For parents who want more for their children during the summer days, specialty camps are available for a premium.

As parents, you need these care options. As taxpayers, you need to be aware that a portion of your childcare bill may be part of a credit that could save money on your taxes.

Child and Dependent Care Tax Credit

Separate from the Child Tax Credit, the Child and Dependent Care Credit is a specific tax credit program for taxpayers who use childcare for those under the age of 13. The credit is meant for working parents, and since it is a government program, there are rules for eligibility and qualification.

To clarify, this program provides a tax credit. What that means is that it can be used to reduce your tax bill dollar for dollar, unlike a tax deduction.

The most recent information from the IRS provides the following limitations.

• The total expenses used to calculate the credit may not be more than $3,000 for a single qualifying individual or $6,000 for two or more.
• The primary reason for paying the expense is for assurance of the well-being and protection of the individual.
• The dependent was under age 13 when care was provided.
• Tax filers must follow special rules if they are the non-custodial parent who is claiming a child as a dependent.

Other stipulations include that you can only claim child care expenses paid while you are at work. This is an important point when considering whether certain camps are eligible expenses.

Claiming the Credit for Daycare

Daycare expenses are the primary reason for the tax credit in the first place. Since the implementation of the tax credit, many childcare facilities provide tax documents to help you file for the credit. In any case, you need to have documentation supporting the amount you paid the previous year to claim this credit, as well as meet the eligibility and qualification requirements.

• You are limited on how much of your childcare expense you can claim. If your income is at least $15,000 annually, you can deduct 35% of your childcare expenses from your taxes. If your income is $43,000 or above, you can only deduct 20% of the expenses.
• You can only use your tax credit for two children. If you have more than two children in care, you cannot claim the expenses for all of them.
• The caregiver you pay can be a family member, but they must be at least 19 years of age, cannot be your legal dependent nor your spouse, and cannot be the child’s parent.
• Once a child turns 13, you can no longer claim the credit for that child.

The care you pay for must be intended to allow you to work, look for work, or attend school as a full-time student. If you are married, your spouse must also be working, seeking work, or be a full-time student. In the latter case, both of you must have earned income while working.

Does Summer Camp Count?

Typical childcare from daycare to babysitting is considered eligible for the tax credit as long as the provider qualifies and you and your children are eligible.

The only type of summer camp that qualifies for the tax credit is day camp. The IRS states the cost of sending your child to a day camp may be a work-related expense, even if it specializes in a particular activity. So that expensive specialty camp counts.

The IRS goes on to say, however, that the cost of sending your child to an overnight camp is not considered a work-related expense. Therefore, those residence camps you have been eyeing will not be regarded as qualified providers. Sorry.

The eligibility requirements are the same as for daycare.

• The child must attend camp while you are at work.
• The child must be under 13 years old. On their 13th birthday, the summer camp pumpkin coach disappears.
• Your spouse, if you have one, must also be working, seeking work, or be disabled and therefore unable to care for the child.
• You must file a joint tax return if you are married unless you are legally separated or you and your spouse live apart.

It's great to know that day camp counts the same as a daycare in the eyes of the IRS.

Can You Use a 529 Plan to Pay for Summer Camp?

In a word, NO. You cannot use a 529 plan to pay for summer camp costs. If you do, the plan distributions used to pay for the camp is considered “non-qualified” and is therefore subject to income tax and a 10% penalty on the earnings portion. If you live where a state income tax is in effect, the state may come for a share also.

So while summer camp can be as expensive as college, you cannot use the 529 program to help pay for it. The plan can be used for study abroad or other summer programs offered for credit by an eligible university or college.

Daycare, for many families, is a given. Summer camp is a nice-to-have. Either way, you can save on your taxes if you keep up with available tax credit programs. The Child and Dependent Care Tax Credit is a valuable, dollar-for-dollar reduction on your taxes as long as you use a qualified program and maintain eligibility.