Camp for kids, tax break for parents

I know you love your kiddos, but admit it. You also love when they are in school and you don't have to worry about what they're up to while you're at work.

Here in Austin, classes wrapped up a little over a week ago. And some of my neighbors are already going a little crazy coming up with ways to keep their youngsters appropriately occupied.

May I suggest day camp.

There are a couple of things to recommend this option.

First, it's a good choice for younger kids, and their parents, who might not be comfortable with Jimmy or Janie spending nights away from home.

Second, your nice Uncle Sam might just help you pay for it.

New use for an old tax break: Most parents are quite familiar with the child and dependent care credit. This tax break allows Mom and Dad to get a credit for a portion of what they pay toward day care so they can go to work.

In most cases during the school year, that means an after-school care taker to look after the youngsters until you clock out.

But during the summer, the IRS says a day camp might fit the bill. Note the word "day" here. Sending the young 'uns upstate to Camp Granada for a week doesn't count.

With a day camp, however, the care credit's basics remain the same:

• The kid going to camp must be younger than 13. 
• You must be sending them to the camp so you can work. Needing the care so you can look for a job also counts.
• If you're married, both you and your spouse must have earned income in 2009 in order to claim the credit on your return next year.

Yeah, you noticed that "next year" didn't you? It's true the credit won't do you any good right now in coming up with cash for camp costs, but at least when you file your 2009 return it should help reduce any tax you owe.

Care credit specifics: There also are a few other limitations.

The main one is that there is no set credit amount. What you're eligible for depends on how many kids are being cared for as well as how much you make.

You can count up to $3,000 in child-care (or day camp) expenses for one child. The allowable expense amount is doubled if you're paying for care of two or more kids.

As for your income, the size of the credit is a percentage of your allowable expenses. And that percentage decreases as your income level increases.

Families earning less than $15,000 can claim up to 35 percent of their child care expenses. For one kid in camp, that would be a $1,050 ($3,000 x 0.35).

For every $2,000 that your income goes over $15,000 your credit percentage drops a fraction. Once your adjusted gross income exceeds $43,000 you can only claim 20 percent of your eligible child care costs.

So if you have two children and pay more than $6,000 for care, you can claim a $1,200 credit if you earn more than $43,000 ($6,000 x 0.20).

Not refundable: Even though the credit is reduced, the good thing about it that it is a credit.

That means it lowers your tax bill dollar for dollar. If you owe the IRS $2,000 then your $1,200 child care credit immediately cuts that down to $800.

The bad thing about the child care credit is that it is a nonrefundable credit.

That means that if you owe the IRS $1,000 then your $1,200 child care credit will let you zero our your tax bill but you won't get that extra $200 back as a refund.

But, hey, knocking your tax bill down to nothing is always a good thing.

Claiming your credit: So if you're sending your kid to day camp this summer, put a note in your 2009 tax return file (you do have that file already created, right?) to remind you to count those costs toward the child and dependent care credit when you file next year.

If you've never claimed the credit before, you can get an idea of just what it entails by looking at the 2008 Form 2441; the 2009 version will be the same.

There you can check out the precise credit percentage amounts, as well as see what kind of information you'll need to include on the form. In addition to your kids names, Social Security numbers and the amount spend on their care so you could work, you'll also have to include information about the care provider.

Your credit claim will be much easier next year if you jot this required info down when you enroll you kids in camp.

Related posts:

• Rock 'n Roll summer camp
• Tax help for summer camp costs

Comments

[debt relief]

this sounds interesting. if it is legit i just might send my little snot there

[Kay]

Jeff,
You raise a very good point. Taxes are by their very nature personal and every taxpayer's situation is unique.

I definitely don't want to be misleading. But in writing about taxes, generalities usually must be made. It's impossible to give specific information about every possible variation without writing forever!

That's why I have my disclaimer that my efforts here on Don't Mess With Taxes simply are to guide readers to possible tax breaks.

That's also why I wrote my book, The Truth About Paying Fewer Taxes. People need to know what's possible, but then it's incumbent on them to make sure it applies to their personal tax situation.

And that's why any blog or book is no substitute for getting personal advice from a qualified tax professional about just what tax laws work (or don't) for each person.

Thanks again for reading and writing.
Kay

[Jeff Day]

Let's pretend that mom and dad are divorced (or in today's world) never married. Child lives with mom. Dad is legally entitled to claim the child as a dependent by the terms of the support/divorce agreement.

Mom's income as in above example is aproximately $14,000. According to the terms, dad pays all the daycare expenses.
Even tho mom isn't claiming the child as a dependent, the dependent care credit is negligible since there is only $1000 taxable income = $100 tax.

Which is why the example:

"Families earning less than $15,000 can claim up to 35 percent of their child care expenses. For one kid in camp, that would be a $1,050 ($3,000 x 0.35)."

Is misleading and absurd.

Why do the lawyers all across America allow the dad to believe he can claim the daycare expense credit, since he is claiming the child as a dependent and since he is paying the expenses and mom pays none and the credit isn't worth hardly anything to her if at all!

Legally those daycare expenses are nothing but support payments by the dad and are not allowed in the computation to arrive at a credit.

Jeff Day EA
Evansville, IN