If you’re the parent of a child under the age of 13, and you’re working or looking for work, then perhaps you’re sending that child to day camp or paying someone to care for them while you work this summer.
If so, you’re likely eligible for a federal tax credit that will put some of that child-care money back in your pocket, even if you have a high income.
I’ll explain the rules, but here’s a quick tip: If you are sending a child to a summer day camp, make sure to ask for the camp’s tax identification number, and the name and address associated with that number. If you are paying someone to care for your child while you work, such as a babysitter, you’ll want their address and Social Security number.
You’ll be asked to provide that information in order to claim the credit on your federal income tax form, and when you’re filling out tax forms in 2016, it may be difficult to figure out who to call. Some summer camp programs last only a few weeks and are held at temporary locations. In my experience, they can be difficult to track down in the off-season.
Here are some key points about the federal Child and Dependent Care Credit:
A tax credit is a dollar-for-dollar reduction in the tax you owe, and is therefore much more valuable than a tax deduction, which reduces taxable income. This credit is worth between 20 percent and 35 percent of the amount paid to care for a dependent, who was under age 13 at the time the costs were incurred, so that you could work or look for work.
You can claim the credit for up to $3,000 in expenses for one child, or $6,000 in expenses for more than one. So, for example, $3,000 in qualifying child-care expenses results in a tax credit worth between $600 and $1,050. Qualifying expenses cannot be greater than the income earned by the tax filer, and in the case of a married couple the amount would be capped by the lowest-earning spouse’s income.
Day-camp expenses count as child care, even if they focus on particular activities such as learning computer skills or cooking, as long as the child’s enrollment in that camp allows the parent to work or look for work. Overnight camps, however, are ineligible expenses.
The cost of a preschool program or an after-school program is an eligible expense. Summer school costs, private school tuition for kindergarten and higher grades, and tutoring costs are not eligible.
Dependent care benefits provided by an employer may reduce the amount of expenses that can be claimed.
Married couples (unless legally separated) must file a joint tax return in order to claim the credit, and both must be working or looking for work during the time the qualifying expenses were incurred. One spouse can, however, be a full-time student, but he or she also must have earned income during the year.
The dependent care credit also applies to work-related expenses necessary to care for a spouse or dependent who is “physically or mentally incapable of self-care and lived with you for more than half the year,” according to the Internal Revenue Service.
Some costs are eligible, or not, depending upon the options offered by the care provider. For example, someone working part-time may only need child care three days a week, but the care provider offers only a five-day program. In that case, the cost of all five days is eligible, but if there were an option to only pay for the three days needed, only the cost of three days would be eligible.
Like many federal tax rules, there are lots of rules that might apply to people with nuanced child-care situations. One example used by the IRS is a family that hires a housekeeper to care for two children, one of which is young enough to qualify for the tax credit, while also providing other household duties and driving the parent to work (the answer is, the cost of the housekeeper qualifies). To see all the rules, visit irs.gov and find Publication 503.