Don't Mess With Taxes

This post was updated June 21, 2019, to reflect proposed Child and Dependent Care tax credit changes.

Spring has just arrived, but parents already are thinking about summer. Specifically, they're wondering who's going to take care of their kids once school is out for a few months.

Now don't get me, or my friends, family and neighbors who have children wrong. We don't view schools and their teachers as babysitters.

But classes do keep youngsters occupied for a big chunk of the day for most of the year.

Then May and June roll around and for the next three or so months it's kids everywhere all the time!

That's a problem for many parents, especially those families where mom and dad both have jobs outside the home.

That's why these parents already are looking into day camps.

It's also why they also turn to their tax returns to help cover the cost of these summertime child care alternatives.

Wide variety of day camps: Day camps are great for kids. They keep busy, learn new things and there's no overnight camp separation anxiety.

They're great for parents, too. The kids are supervised, the camps are typically less expensive than their sleep-away counterparts and there's no overnight camp separation anxiety.

I'm not a parent, but I'm still intrigued by the variety of day camps out there to keep young people occupied for most of the long summer days that their parents are at work.

Over the years, I've seen camp promotions for mastering Frisbee tosses, becoming a stunt actor and even training on how to get on reality television shows.

My local social/fitness club is a bit more conventional, but it does offer both full- and half-day camps for youngsters as young as age 2.

The Tot Camp for preschoolers offers arts and crafts, games and a swimming session on Fridays at the club's kiddie pool.

Sports-inclined older youngsters (and their parents) can choose day camps that focus on karate, tennis and golf.

There's also a general camp that rotates its emphasis weekly throughout the summer. The alternating activities center on beach activities, superhero adventures, space exploration, world travel, wilderness study and, quoting here, mad science.

My favorite neighborhood day camp, though, is WhizBiz Kids Camp. Here, according to the brochure, the entrepreneurial campers learn leadership and teamwork skills as they start their own pop-up business and bring a product to market.

I'm presuming we're going well beyond the standard suburban lemonade stand.

A nice camp bonus is that the WhizBiz Kids get to keep any profits they make. Mom, dad and the fiscally fit youths might want to negotiate whether any of earnings go toward paying for the camp's cost.

Tax help paying for camp: Or the parents can let their kiddos keep the cash and turn instead to the federal tax code for camp payment help.

Day camp costs qualify for the child and dependent care tax credit.

This tax break covers up to $3,000 spent on care for one child or up to $6,000 for the care costs two or more kids.

You also can aggregate the costs if you have multiple children. Say you paid $2,500 in qualified expenses for the care of your son and $3,500 for the care of your daughter. You can use the total of both to reach the $6,000 maximum to claim the credit.

But don't get too excited about Uncle Sam's summer child care help just yet.

The amounts spend on a camp are not the same as the actual tax break.

Figuring your actual credit: The actual tax credit you can get is a percent of those costs that is based on your adjusted gross income. So you must do some math to come up with your exact tax credit amount.

The maximum credit amount is maximum of 35 percent of your eligible camp and other child care costs throughout the year.

And that maximum is available only to parental taxpayers who are on the lower end of the earnings scale, specifically $15,000 or less regardless of filing status.

That translates to a maximum tax credit of $1,050 for care of one child or $2,100 for costs related to two or more youngsters. Here's the math:

The percentage of costs amount also is phased down as income increases.

Ultimately, taxpayers who make more than $43,000 can claim only 20 percent of their costs, or $600 for care of one child and $1,200 for two or more youngsters.

Credit provides direct tax savings: While $600 or even $2,100 might not seem like a lot, especially if you've also been paying child care costs year-round, it's at least some help.

And if summer day camp is the only child care cost you incur, then it could help a lot.

Plus, the amount is a tax credit. That's a dollar-for-dollar reduction in what you owe Uncle Sam.

Note, though, that while the child care credit amount directly reduces any tax you might owe when you file your return, it's a nonrefundable credit.

That means, for example, if you get a $2,100 child care credit and owe $1,800 at tax time, you can only zero out your tax bill. The excess $300 cannot be sent to you as a refund.

Other child care credit rules: In addition to the earnings limits, keep in mind the other child care credit rules.

Day camp costs only are allowed. You can't count the usually higher expenses of sleep-away camps.

Your kid, either at summer day camp or after-school care when classes are in session, must be 12 years old or younger.

The kiddo also must be your dependent.

And the parents claiming the credit must work or be looking for a job. If you're married, that means both of you have to be employed or seeking work. The only exception is when one spouse is either a full-time student or is physically or mentally incapable of self-care.

So if you don't have a job other than being a parent and just want a break from the ever-present kids during the summer, sorry. You can still send them to day camp, but Uncle Sam isn't going to help you cover the cost.

You can find more on the child and dependent care tax credit in the instructions for Form 2441, which you must file to claim this tax break.

Better care credit proposed (UPDATE June 21, 2019): Also keep an eye on Congress, or at least the ol' blog which will update you.

Democrats on the House Ways and Means Committee have proposed expanding the Child and Dependent Care tax credit.

Under the Economic Mobility Act of 2019, which cleared the tax-writing panel on June 20 and is awaiting full House consideration, would increase the percentage of eligible expenses from 35 percent to 50 percent. The income phaseout threshold also would be hiked to make more filers eligible.

While the changes to the care credit should easily clear the Democratic-controlled House, there's no guarantee the Senate, still held by Republicans, will follow.

Stay tuned. Whatever happens, you'll find the info here on the ol' blog. 

You also might find these items of interest:

• Be sure to claim the EITC if you qualify
• Tax breaks can help pay many college costs
• Adoption tax credit, other family-related 2018 inflation amounts changed by new tax law

Advertisements