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Tax Strategies & Credits

Tax Credits for Day Camps - Do You Qualify?

by
Spencer Wilson
on
6/21/2016
Tax Credits for Day Camps - Do You Qualify?

Every summer, many working parents are faced with the dilemma of what to do with the kids once school lets out for summer. A family in which both parents work is often able to do so because their children are in school during the hours that they are away from home, and when the school year ends that goes away.

For those faced with this problem, day camp programs provide both a convenient and enjoyable answer and a tax break. If the children are under the age of 13 or handicapped, a portion of day camp expenses can be written off as a child and dependent care credit. 

Who qualifies for the tax break? 

There are certain requirements that must be met in order to take this write off. The expense can only be taken for children that fall under the category of family, which in this case is defined as being your child, foster child, stepchild, sister, brother or step-sibling. You can also take the credit for a descendant of any of these who is part of your household for more than half the year.

The credit cannot be taken for overnight camp and can’t be taken for anybody that provides more than half of their own support, and you must be able to show that it is an “employment-related expense” – in other words, that placing the child into the care of the camp enables you to continue working.

If a couple is married then both must work and their taxes must be taken jointly. The only exception to the rule that both must work is if one spouse is either disabled or a full time student. 

When calculating the credit for married couples, it is important to remember that it is limited to the income of whichever spouse earns less, and for single taxpayers it is limited to the income that is earned.

If there is a situation where one spouse earns no income because of a disability or because they are a full-time student then the IRS calculates the credit based on that parent earning $250 per month for one child and double that for two or more children.

The IRS places a limit on the amount of the expense that can be taken each year. For families who take the credit for one qualifying child, that amount is $3,000 per year, and increases to double that amount for two or more qualifying children. There is not requirement that the same expense is incurred on each child, or even that expenses are actually incurred for each child – if there is more than one qualifying child under the age of 13 in the family, then the maximum expense of $6,000 cam be reported.

The amount of the credit is determined by the family’s joint adjusted gross income, and is received as a percentage of the qualified expense. Families earning $43,000 or less receive the highest credit, but in most cases families receive a 20% dollar for dollar credit that reduces the amount of taxes that they owe – the credit percentage is never greater than 35%. 

A real life example 

To better understand how the tax credit works, consider a working family where both spouses earn more than $40,000 in income each year. If they have one child who is eleven years old and both work hours that are in line with the school day, then if they choose to send the child to summer camp they can write off up to $3,000 of the expense. This $3,000 expense would be received as a $600 credit against their taxes due, as it is calculated at 20% of the $3,000 limit. 

There are certain limitations on the use of this credit. It can only be taken to reduce taxes on income and alternative minimum tax liability, so any amount that exceeds the actual income is not available.

Those who are self-employed are not able to use this credit, and those who pay taxes created by the Affordable Care Act cannot use this credit to reduce their tax burden for those taxes.

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Spencer Wilson

Spencer Wilson

Spencer Wilson, EA is a tax preparer based in Long Beach, CA. Spencer Wilson Financial Management Services has been serving the Greater Los Angeles Area and Orange County since 2004. <br /> We began in the heart of Naples in Long Beach and we continue to work hard offering tax preparation and planning, business accounting and bookkeeping and payroll services . <br /> We have helped many different people and businesses succeed financially and take control over their finances.

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