Summer just ended and if you’re a working parent, there’s a valuable tax break you should keep in mind for the next summer season.
Many working parents need to arrange childcare for their kids under 13 (or any age if disabled) during the school break. One popular option that comes with a tax perk? Day camps! The cost of day camps can be counted as an expense for the Child and Dependent Care Credit. However, keep in mind that overnight camps and summer school or tutoring programs don’t qualify.
💵 Expense Qualifications
For an expense to qualify for the credit, it must be an “employment-related” expense; i.e., it must enable you and your spouse, if married, to work, and it must be for the care of your child, stepchild, foster child, brother, sister or stepsibling (or a descendant of any of these) who is under 13, lives in your home for more than half the year and does not provide more than half of his or her own support for the year. Married couples must file jointly, and both spouses must work (or one spouse must be a full-time student or disabled) to claim the credit.
The qualifying expenses are limited to the income you or your spouse, if married, earn from work, using the figure for whoever earns less. However, under certain conditions, when one spouse has no actual earned income and that spouse is a full-time student or disabled, that spouse is considered to have a monthly income of $250 (if the couple has one qualifying child) or $500 (two or more qualifying children). This means the income limitation is essentially removed for a spouse who is a student or disabled.
For 2021 only, the total expenses that you may use to calculate the credit may not be more than $8,000 (for one qualifying individual) or $16,000 (for two or more qualifying individuals). This limit does not need to be divided equally.
The credit reduces a taxpayer’s tax bill dollar for dollar. However, the credit can only offset income tax and alternative minimum tax liability, and any excess is not refundable. The credit cannot be used to reduce self-employment tax or the taxes imposed by the Affordable Care Act.
If the qualifying child turned 13 during the year, the care expenses paid for the child for the part of the year he or she was under age 13 will qualify.
Need Help?
Tax season shouldn’t add more stress to your busy schedule as a parent. Let’s simplify it! Contact us today, and we’ll help you take full advantage of the tax breaks that benefit working parents like you in 2024.