Among the many challenges of parenthood is school’s summer breaks. Parents who send a child to day camp may qualify for the child and dependent care credit. Babysitters or day camps are options. There’s no one-size-fits-all answer, but you may be eligible for a tax break. This article explains why tax credits are so valuable and how eligibility for this one is determined. (Note: Overnight camps do not qualify.)
Dollar-for-dollar savings
Day camp or babysitter costs can be a qualified expense under the child and dependent care tax credit. The credit is worth 20% to 35% of the qualifying costs, subject to an income cap. As of this writing, the maximum credit for 2022 is expected to revert to the 2020 level of $2,100 for one child. This is much lower than for 2021, when the credit was temporarily expanded due to COVID-19.
Tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar — $100 of tax credit saves $100 of taxes. Deductions simply reduce the amount of income subject to tax. If you are in the 24% tax bracket, $100 of deductions saves you only $24 of taxes.
Qualifying for the credit
Only dependents under age 13 qualify. Eligible care costs are those incurred while you work or look for work. You must report the providers name, address, and tax identification number.
Expenses paid from or reimbursed by an employer-sponsored Flexible Spending Account cannot be used to claim the credit. The same is true for a Dependent Care Assistance Program.
Determining eligibility
Additional rules apply to this credit. Contact us if you have questions about your eligibility for the credit and the exceptions.
HoganTaylor Tax Services
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax services, please contact Tony Otto, Lead Tax Partner. You may also contact Denise Felber, Tax Partner.
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
