This summer, a friend asked me a question that will save me $85 on my taxes. Next year, I’ll probably save even more. And while I’m not always the sharpest pencil in the cup, I can’t be the only person who didn’t know that this extremely common situation qualifies for a hefty tax credit of up to $1,200.
The question was: “Is my son’s soccer camp tax-deductible?”
Gimme a break, I thought. Soccer camp? Are ski lift tickets tax deductible?
Lift tickets, not so much. But that summer soccer camp is better than tax deductible. It’s eligible for the Child and Dependent Care Credit. So is my daughter’s gardening camp, and dozens of other types of day camp.
Are you eligible?
This is really two questions in one. First, do you, as a family, qualify? Second, does your kid’s camp qualify?
Let’s look at the family rules first. The full details can be found in IRS Publication 503, but I’m going to condense those 23 pages into the highlights so you can get back to work making money and taking tax credits while your kid is at horse camp or whatever.
1. Your child has to be under 13 to claim the credit. Thirteen-year-olds, according to the IRS, can take care of themselves. Expenses incurred cleaning up after a 13-year-old left home alone are not deductible. Life is so unfair.
2. If you’re married, you must file jointly and both spouses must be either working, looking for work, or attending school full-time.
3. If you’re a single parent, you must be working, looking for work, or attending school full-time.
4. You have to file form 1040, 1040A, or 1040NR, not 1040EZ; you claim the credit on form 2441.
5. You have to owe federal income tax for the year. The credit is nonrefundable, meaning it can’t reduce your tax burden below zero. (This doesn’t mean you have to owe the IRS a check at filing time; if you’re paid up via payroll deduction, the tax credit will increase your refund.)
Is that camp eligible?
Most day camps are eligible for the credit. Here’s what isn’t:
1. Overnight camp is not eligible, even if the camp has a really funny name like Camp Squackahonket.
2. Tutoring and summer school are not eligible. Preschool is eligible, but if your child is in preschool, you’re probably already maxing out the credit during the school year.
Dayna Garner, a tax consultant with Capital Accounting & Tax Services near Seattle, sums it up this way: you qualify “as long as it’s not overnight and as long as both parents are working.”
Okay, say you qualify. How much money are we talking about?
First, how many kids do you have? If you have one child, you can claim up to $3,000 in expenses (sounds like horse camp to me!). For two or more children, you can claim a total of up to $6,000.
Second, what’s your income—or, as the IRS likes to call it, adjusted gross income (AGI)? If you have very low income, you can receive a tax credit of up to 35% of what you spent on camp…but if your income is that low, you probably didn’t pay federal tax anyway. In practice, most people who take the credit for summer camp will get around 20%. In other words, if your family AGI is over $43,000 and you spend $1,000 on day camp for your child, your tax bill will be reduced by $200.
“I just had a client this summer,” says Garner. “She has two children who are in day camp. It cost about $2,000.” That means $400 back from Uncle Sam when she files her taxes next year.
A few caveats
To be clear, this isn’t a special Summer Camp Deduction; it’s part of the year-round child care tax credit. If you’re already spending $3,000 per child on childcare during the school year, the IRS isn’t going to do anything for you in the summer. But my family falls right into warm clutches of this tax credit, and I suspect there are many others in the same position: our daughter attends elementary school; she has little paid childcare during the school year; and we send her to day camp for a couple of weeks in the summer.
Is taking this credit an audit risk? “Not necessarily,” says Garner, because the credit is relatively small. “There’s only a maximum limit they can claim anyway.”
Finally, there’s one special situation you should know about. If you’re in the 25% tax bracket or higher and your employer offers a child care flexible spending account (FSA), you may be able to save more money by using the FSA instead of the tax credit—especially if you only have one child. That’s because you can put up to $5,000 of pre-tax money into the FSA (and thereby save 25% or more on it). Like the FSA for healthcare expenses, however, any money left over at the end of the year is lost forever.
Last year, I blew it: I didn’t know I could claim summer camp expenses, and I let the IRS keep some of my cash. This year, I’m claiming the credit, and next year I’m going to be really smart: to maximize the credit, I’m sending my daughter to orthodontics camp. Which doesn’t really exist, but wouldn’t it be handy?