Summer Tax Tips

Ah Summer Time….

The time when the flowers are in full bloom and we all enjoy family activities like dragging the kids to the swimming pool and then off to baseball practice but then they start to whine incessantly about how they’re so bored and that there’s NOTHING to do…

Ah Summer Camp….

A few weeks respite when the kids can be entertained by trained professionals and we can relax and enjoy the season.

One question I get a lot from my clients is whether the cost of summer camp is tax deductible.  Many of them have their children in daycare or after-school programs during the school year and receive the Dependent Care Credit, so isn’t summer camp more of the same?

Well, sort of.

Let’s review the basics of the Dependent Care Credit first.

If you (or both you and your spouse) are working or seeking work, attending school fulltime, or are permanently disabled, you can usually deduct a portion of the costs you pay for child care.  While this person is usually your own dependent child under the age of 13, the credit might also apply to other persons, such as an elderly parent, who lived with you for more than half the year.

To claim the credit, you need to calculate how much you paid for child care and then subtract from that amount any dependent care benefits that you received from your employer.  This is typically a pre-tax deduction that you sign up for every year, but not every employer offers it.

Once you’ve figured the out-of-pocket expenses for day care services, you then check your Adjusted Gross Income (that’s going to be the figure on the last line of Page 1 of your Form 1040). 

Based on your Adjusted Gross Income, your credit will be a percentage of your out-of-pocket costs. This could be anywhere from 35% for very low-income workers to a maximum of 20% for people earning $43,000 or more.  To see the tables, go to http://www.irs.gov/pub/irs-pdf/p503.pdf.

Caveat:  You cannot claim child care expenses paid to your spouse, the child’s parent (if not your spouse), or to anyone who you claim as a dependent on your tax return.

Other Caveat: The person who provides the day care must report this income.  The Form on which you claim the Dependent Care Credit (Form 2441) asks for the Social Security or Tax Identification number of the person (or company) that provides the services.

If you’re paying “under the table” for child care, then you can’t claim the credit.

OK.  So what about summer camp?

The basic rule is this – any summer camp that does NOT provide overnight accommodations is considered daycare the same as any other daycare provider.  So if you have your child enrolled at a number of summer camp programs through the YMCA or other organization, these costs are deductible the same as your regular day care costs.

However, camps where your kids spend the night are NOT considered daycare and don’t qualify for the Dependent Care Credit.  Bummer.

But you really have to look at it from the government’s perspective.  If the cost of overnight camps was tax deductible, you could send your kids to “camp” at Disneyland for two weeks and then claim a tax credit.  And if you think that nobody would be so foolish as to even attempt such a thing, you need to read some of the whoppers that turn up in court on a regular basis.

So have a good summer, and if you have a tax question, drop me a line at jeffrey.ritchie@yahoo.com and I’ll do my best to answer it.

Thanks for reading.

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