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School’s Out – Who Is Going To Take Care Of The Kids?

Summer! A time for carefree days, sunshine, and… scrambling to find childcare while you keep the bills paid. But working parents, rejoice! There’s a hidden gem in the tax code waiting to be discovered – the Child and Dependent Care Credit. This credit can significantly reduce your summer childcare expenses, putting more money back in your pocket.

Day Camp Fun? It Can Be a Tax Deduction!

With schools out, many parents turn to day camps to keep their kids engaged and supervised. Here’s the good news: day camp costs can qualify for the Child and Dependent Care Credit! This means a portion of those fees translates to tax savings. However, there are some key things to remember:

  • Overnight camps don’t count. This credit is specifically for day camps that provide care during your working hours.
  • School’s not quite out for this tax break. Summer school and tutoring programs are not eligible expenses.

Age is Just a Number (for this Credit, at Least)

Even if your child turns 13 during the year, expenses paid for their care while they were under 13 can still qualify for the credit. The key factor is that the care must be “employment-related,” meaning it allows you (and your spouse, if applicable) to work. This applies to children under 13 who live with you for more than half the year and don’t provide more than half of their own financial support.

Understanding the Income Limits and the Math Behind the Magic

There’s a limit to how much childcare expense you can claim for the credit. This limit is based on your earned income, with the lower earner in a couple being the reference point. Exceptions exist for spouses who are full-time students or disabled.

The credit percentage itself is not a flat rate. It can range from 20% to 35%, depending on your combined Adjusted Gross Income (AGI). The lower your AGI, the higher the credit percentage. For example, families with an AGI of $43,000 or less can enjoy a credit of up to 35% on qualifying childcare expenses.

Let’s Make it Real: A Credit Example

Imagine Al and Janice, a working couple with a daughter in a summer day camp program. Although both Al and Janice work and their AGI falls outside the 35% bracket, they can still benefit from the credit. They’ll receive 20% back on their qualifying childcare expenses, up to the established limit.

Know What’s In and What’s Out

While day camp expenses are generally credit-worthy, overnight camps and tutoring fall short. However, there’s good news! Here’s a breakdown of what qualifies and what doesn’t:

  • Qualifying: Day camps, before- and after-school care, daycare facilities, in-home care providers, and school expenses for children under kindergarten age.
  • Not Qualifying: Overnight camps, tutoring programs.

Claiming Your Credit: What You Need to Know

To claim the credit on your tax return, you’ll need some key information from your childcare provider: their name, address, and tax ID number. Make sure you have this information readily available before you settle the bill – it’s essential for claiming your credit.

Beyond Federal Taxes: State Credits Might Be Waiting

Some states offer similar child and dependent care credits on their state income tax returns. Don’t miss out on potential additional savings! Research your state’s tax code to see if there are additional requirements or credits you can leverage.

Summer Savings and Peace of Mind

Summer shouldn’t just be about fun and relaxation; it can also be a time for smart financial decisions. By understanding and utilizing the Child and Dependent Care Credit, working parents can significantly reduce their childcare expenses. This translates to peace of mind knowing you’re maximizing your tax savings while ensuring your child is well cared for during the break.

Still Have Questions? We’re Here to Help!

Tax laws can be complex, and the Child and Dependent Care Credit might seem daunting at first. If you have questions about how this credit applies to your specific situation, don’t hesitate to reach out to our office. We’re happy to offer personalized assistance and guide you through the process of making the most of this valuable tax benefit. So, embrace the summer fun, and let us help you navigate the complexities of tax season, all while keeping more money in your pocket!

JS Morlu LLC is a top-tier accounting firm based in Woodbridge, Virginia, with a team of highly experienced and qualified CPAs and business advisors. We are dedicated to providing comprehensive accounting, tax, and business advisory services to clients throughout the Washington, D.C. Metro Area and the surrounding regions. With over a decade of experience, we have cultivated a deep understanding of our clients’ needs and aspirations. We recognize that our clients seek more than just value-added accounting services; they seek a trusted partner who can guide them towards achieving their business goals and personal financial well-being.
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