Summer will be here before you know it! If you are a working parent with school-aged children, you know that it can also mean pretty steep bills for childcare and summer camp. However, you may be able to soften the hit to your family’s budget if these services qualify for the Child and Dependent Care Tax Credit.
This credit reduces your tax liability dollar for dollar when you deduct the cost of day care provided by a day camp, day care, preschool, babysitter or nanny. Keep in mind, expenses for sleep away camps and tutoring are not eligible for this tax credit.
Here are the other qualifications for deducting the cost of these services on your next tax return:
If you are married and filing a joint return, both spouses must be employed, or one spouse may be a full-time student.
If you are looking for employment, you can claim the cost of childcare provided during your job search—with the caveats that a) you have also earned some income during the year and b) your child is under 13 years of age.
You can claim up to $3,000 in eligible childcare expenses if you have one child and up to $6,000 if you have two or more children.
The amount of these expenses you can claim with the credit ranges from 20 to 35 percent, depending on your income.
The maximum of 35 percent of eligible expenses is available for those earning $15,000 or less.
The credit decreases to 20 percent of eligible expenses if you earn $43,000 or more, with no maximum income limit.
It doesn’t matter whether you file your taxes as married jointly, single, or head of household in regard to the income stipulations for the credit. However, you cannot file as married filing separately and also claim the credit.
Summer day camps qualify for this credit. See the IRS link here for more information.
Another note: You cannot double dip between a dependent care flexible spending account (DCFSA) and the childcare tax credit for the same expenses. However, if you have maxed out funds from your DCFSA, you can use the tax credit up to the limit for any additional childcare expenses.
For more information on the Child and Dependent Care Tax Credit contact our firm.