As a parent, finding the right summer activity for your kids when school is out can be a challenge. While babysitters are an option, sending your children to a day camp can offer them a fun and enriching experience. What's more, choosing a day camp might make you eligible for a valuable tax break. (Note: Overnight camps don't qualify for this benefit.)
Understanding the Dollar-for-Dollar Savings
Day camp expenses can qualify for the child and dependent care tax credit. This credit allows you to claim 20% to 35% of your qualifying expenses, depending on your income. As of now, you can claim up to $3,000 for one child or $6,000 for two or more children. If you qualify for the highest percentage (35%), this translates to a maximum credit of $1,050 for one child or $2,100 for two or more children with the maximum expenses.
The percentage of the credit decreases as your adjusted gross income (AGI) increases. For households with an AGI above $43,000, the credit is 20% of qualifying expenses, capped at the same $3,000 or $6,000 limits.
Tax credits are particularly valuable because they reduce your tax liability dollar-for-dollar. This means a $1,000 credit directly reduces your taxes by $1,000. This is in contrast to tax deductions, which only reduce the amount of income subject to tax. For example, in a 24% tax bracket, a $1,000 deduction reduces your tax liability by only $240.
Who Qualifies for the Credit?
To qualify for this credit, the care must be for a dependent child under age 13. However, you can also claim expenses for a dependent adult, such as a parent or in-law, who is incapable of self-care. Importantly, these expenses must be incurred so you (and your spouse, if filing jointly) can work or look for work.
Remember, expenses reimbursed by an employer-sponsored Flexible Spending Account or a dependent care assistance program cannot be used to claim this credit.
Determining Your Eligibility
There are additional rules and exceptions that apply to this credit. To ensure you maximize your tax benefits and comply with all regulations, consult with a member of the HoganTaylor Wealth or HoganTaylor Tax team today.
By taking advantage of this tax break, you can make the summer more enjoyable for your kids and more affordable for you.
HoganTaylor Wealth
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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.
