IRS Audit, IRS Problems, Tax Audit, Tax Credit

Can Summer Camp or Day Care Really Save Me Tax Dollars?

June 19, 2013 - IRS Audit, IRS Problems, Tax Audit, Tax Credit

Yes! You may qualify for the Child and Dependent Care tax CREDIT. How do you qualify? Your dependent must be age 12 or younger, when the care is given. No credit is allowed in the year your child turns 13. An older dependent or spouse may qualify if they are mentally or physically unable to care tor themselves. Your dependent must have lived with you for more than half the year. There are special exceptions for dependents who are born or who die during the year. You will list their names and social security numbers on the tax credit form plus how much you paid for each individual person’s care.   This care must be given in order for you to go to work or look for work. You must have income from wages or other taxable compensation. If you are married and filing a joint return, this work requirement applies to both of you.   What if you are a stay-at-home parent and don’t have a job? If you go to school full time, you may be considered as having earned income for this credit. This credit is not available to spouses choosing the “married but filing separately” tax filing status.   This payment has to be made to someone other than your spouse, You cannot take a credit if you pay the parent of your qualifying person for the care. Payments you make to someone you claim as a dependent on your tax return do not qualify for the credit. If you do pay for your own child, who is not a dependent on your tax return, they must  be age 19 or older that year. You will list each care-giver’s name, address, social security number or employer ID number PLUS the total amount you paid that care giver. The Internal Revenue Service tax law will dictate how much credit is allowed on the amount of expense you incurred.   Some care-givers are people who run their businesses “on the side.” If they do not provide you with their social security or employer identification number, you do not get to claim the credit. They are cheating the tax system. And you are paying their tax. (Just sayin’.) Is theirs the only care you can get for your child? Is theirs the only care you can afford for your child?   You are able to give someone up to $13,000 per year for this year. That gift amount can change every year. That gift is not taxable to them and is not deductible by you. Generally a gift is given with no expectation of anything in return. Day care given in exchange for money or something else of value is not a gift. The income the care giver receives is their taxable income, whether they have a hobby or a business.   Money you pay for your babies in day care may qualify for the credit. Money you pay for older children’s after school care may qualify. What about summer school? The tuition is not deductible. But the cost for care after summer school class may qualify for the tax credit.   What about summer camp? Day camp may qualify but a camp where the child stays overnight does not qualify. And what about if the dependent who needs care is an adult? There is also adult day care. Your expenses for all of these different types of dependent care  may qualify for the Child and Dependent Care tax Credit.   The tax laws are always changing and get more and more complicated. There will always be more that needs to be said. I hope this blog has helped you understand some of the CREDIT that your family may qualify for. If you have questions about your day care situation, post your question in the comment section of this blog or consult your tax advisor.   I’ll talk about Education Tax Credits and Education Expenses in another blog.