Abstract: Among the many challenges of parenthood is
what to do with the kids when school lets out. Parents who choose to send a
child to day camp may qualify for a valuable tax break: that is, the child and
dependent care credit. This article explains why tax credits are so valuable
and how eligibility for this one is determined.
Sending
the kids to day camp may bring a tax break
Among
the many challenges of parenthood is what to do with your kids when school lets
out. Babysitters are one option, or you might consider sending them to a day
camp. There’s no one-size-fits-all answer, but if you do choose a day camp, you
could be eligible for a tax break. (Note: Overnight camps don’t qualify.)
Dollar-for-dollar savings
Day
camp can be a qualified expense under the child and dependent care tax credit.
The credit is worth 20% to 35% of the qualifying costs, subject to an income
cap. As of this writing, the maximum credit for 2022 is expected to revert to
the 2020 level of $2,100 for one child. This is much lower than for 2021, when
the credit was temporarily expanded due to COVID-19.
Tax
credits are particularly valuable because they reduce your tax liability
dollar-for-dollar — $1 of tax credit saves $1 of taxes. Deductions simply
reduce the amount of income subject to tax. So, if you’re in the 24% tax
bracket, $1 of deduction saves you only $0.24 of taxes.
Qualifying for the credit
Only
dependents under age 13 generally qualify. Eligible care costs are those
incurred while you work or look for work.
Expenses
paid from or reimbursed by an employer-sponsored Flexible Spending Account can’t
be used to claim the credit. The same is true for a Dependent Care Assistance
Program.
Determining eligibility
Additional
rules apply to this credit. Contact us if you have questions about your
eligibility for the credit and the exceptions.
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2022