Menu

Tax Strategies & Credits

Why and How Do Summer Camp and Taxes Go Together?

by
Steward Financial
on
6/20/2019
Why and How Do Summer Camp and Taxes Go Together?

In addition to all of the educational and social benefits that attending school provides, the hours that children are attending school are hours that working parents don't have to arrange for childcare. This means that when school closes for the summer, working parents have to scramble to find either someone to watch the kids or somewhere else for the kids to go. In recognition of this dilemma, the government allows parents to count the cost of day camp for children under the age of 13 (or for disabled children of any age) as an expense toward the child and dependent care credit. If your child is aging out of the program during the tax year in question (and turns 13), the expenses that you paid for camp during the months that they were under the cutoff age can still be used.

Because camp offers kids the ability to be in a supervised setting with a schedule that works well with most parents job obligations (and in many cases even offers aftercare), this is a highly valued tax credit, but it is important that you understand all of the rules for which expenses qualify. You cannot receive the tax credit for expenses for overnight camp, tutoring programs or summer school, and in order to qualify the expense must be related to employment. This means that incurring the cost of the camp must allow you to continue working in the same way that other types of childcare do.

The expense can be for any of the following: your child or stepchild; a foster child; or your sibling, stepsibling, or descendent of any of these. The child must be a resident of your home for at least half of the year. The credit cannot be applied if the child provides over half of their own support over the course of the year.

In order for a couple to apply for the child and dependent tax credit for camp expenses, they must both work (unless one spouse is either disabled or a full-time student,) and they are required to file their taxes using the married filing jointly status. There are additional limitations: in order to qualify, the camp expenses cannot exceed the income earned by the lowest-earning spouse. If one spouse is either disabled or a full-time student, and is therefore not actually earning income, the IRS considers that they earn $250 monthly (if they have one qualifying child) or $500 for more than one child. This effectively eliminates the income limitation under those circumstances, especially because the expenses that qualify cannot exceed $3,000 for one child or $6,000 for more than one child.

If a family has multiple children attending programs with different costs, there is no reason to worry about keeping things even: you are permitted to apply up to $6,000 in expenses regardless of how much is spent on each child. The amount of credit you are permitted is calculated using your qualifying expenses and a factor that is based on your income, with most using a factor of 20%: for those with a joint adjusted gross income of $43,000 or less, the factor can increase, but cannot go higher than 35%.

To see how the credit works in real life, consider the example below:

Example: Meryl and Grant are both employed, and together they have an adjusted gross income of more than $40,000 per year. Meryl works part-time during school hours. They have a 9-year-old son, Michael who attends a day camp program that costs $4,000. Since the expense limitation for one child is $3,000, their child credit would be $600 (20% of $3,000).

The advantage of the child and dependent care credit is that it directly cuts a family's tax liability in the exact amount of the credit. The amount that Grant and Meryl will owe for taxes will be lowered by $600, though that credit will only be applied against income tax and alternative minimum tax liability. If they already have other credits or do not owe taxes, the credit will not be included in a tax refund.  Also, if they owe self-employment tax or taxes imposed by the Affordable Care Act, the $600 cannot be applied to that liability.

For more information on how to use this tax credit to your advantage, contact a tax professional.

Jon Osborn, EA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].

share this post
Search for matches...
Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

Steward Financial Services
★ ★ ★ ★ ★
38 reviews

California

Firm Profile

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts