Summer is a time associated with joy, leisure, adventure, and nature. But for busy working parents, summer can be a stressful time with kids out of school and wandering aimlessly. Many take advantage of daycares, babysitters, and summer camps to help entertain their little ones and the great news is that these can result in wonderful tax savings under the right circumstances. Let’s dive into how it works.
If you are paying someone to care for your child or another dependent in your house while you work, you might be eligible for the Child and Dependent Care Credit. This credit helps offset the childcare expenses you paid by saving you hundreds or even thousands of dollars on your tax bill. Who qualifies? A child aged 12 or under who you list as a dependent on your tax return or a spouse who is unable to care for him or herself and lives with you at least half of the year. Any other person who is listed as a dependent and is unable to care for his or herself while living with you also qualifies.
The expenses must be paid to someone else, like a daycare provider or day summer camp, in order to be eligible. The care is not eligible if it is your spouse, the child’s parents (like your ex-spouse), or one of your other children under 19 regardless of if they are classified as your dependent (i.e. your 17-year-old taking care of your 5-year-old.) Daycares, babysitters, nannies, and even kindergartens can count as childcare providers. Camps count even if they are activity or sports-centric but overnight camps are not eligible. Expenses for a nurse related to a disabled dependent count as well.
The other requirements you need to meet in order to get this tax credit include that you must be working and you and your spouse must have some form of “earned income” (investment returns don’t count) and file a joint tax return. Being a full-time student or looking for work full-time does qualify and would exempt you from the earned income requirement.
The size of the credit will be calculated based on how much you have spent on childcare expenses as well as your income. The great news is that this is a credit, not a tax deduction, so it directly reduces your taxes dollar for dollar as opposed to just reducing your taxable income. You’ll need to provide the Taxpayer Identification Number (TIN) of the caregiver in order to receive the credit, which could be either their social security number or their employer identification number.
Childcare expenses can get pretty pricey for families, especially during the summer months. Luckily, there are tax credits that can help you offset these costs and reduce the taxes you owe. If you find that you don’t qualify for the Child and Dependent Care Credit, there are many other options for deductions related to childcare to explore. Any of our ClarkSilva team members would be happy to discuss this in more detail with you and answer any questions you have – and maybe share a few camp stories of our own…Contact us today!