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Summertime Child Care Expenses May Qualify for a Tax Credit

By Marcia Richards Suelzer, MA, JD | June 29, 2012

If you are a small business owner or any working parent, summer can bring the added stress of finding day care for your children. While you still have to find the ideal babysitter or day camp, it may bring some relief to know that the expenses that you have may qualify for a tax credit.

The child and dependent care tax credit is available to help offset the costs of providing care for children under age 13 while the child's parents are working. If you work from home and you pay someone to watch your child so that you can get your work done, those expenses may qualify for the credit. Day camp expenses may also qualify for the credit, even if the camp is a "specialty camp," such as a sports camp or a computer camp.

Warning. Expenses for an overnight camp do not qualify. This is true even if the same costs would qualify if the camp was a day camp.

The credit is based on a percentage of the qualifying expenses. The amount of qualifying expenses is limited to $3000/year for one qualifying individual or $6,000/year for more than one qualifying individual.

Tip. The expenses do not have to be equally divided if there is more than one qualifying individual. For example, your daughter may attend a computer camp that costs $4,000, while your son is cared for in your home at a cost of $2,000.

The percentage used to calculate the credit ranges from 20 percent to 35 percent, based upon your income. If your income is under $15,000, then you will be eligible for the full 35 percent. The allowable percentage drops one percent for each $2,000 in income over $15,000 until the 20 percent amount is reached at $43,000.

Example. During the summer, Jack and Diane pay $300/week for their ten year-old daughter, Katelyn, to attend day camp so they can work. Although their day care expenses for the summer total $3,600, the amount that is eligible for the credit is capped at $3,000. The couple's adjusted gross income is $67,000; therefore, their credit percentage is 20 percent. Assuming all the other requirements are met, Jack and Diane can claim a $600 tax credit on their 2012 tax return.

Although $600 may not seem like much, a tax credit reduces tax owed dollar-for-dollar, so you want to take full advantage of every possible credit. To ensure that your expenses qualify and to claim the child care credit, you should complete Form 2441, Child and Dependent Care Expenses, and include it with with your annual tax return.

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