Summer Camp Expenses May Be Tax Deductible

With the school year over, summer camps are in full swing.  Camps can be a lot of fun for the kids but did you know that you could potentially get a tax credit for sending them to camp?  It’s true, so let’s dive into what all this means.

How do I qualify for the credit?

Summer camps can fall into the category of dependent care expenses and qualify for the Dependent Care Tax Credit.  To qualify for the credit, you must incur expenses for a child under age 13.  A married couple also needs to demonstrate that they are employed which means one spouse works full-time and the other works at least part-time or is a full-time student.  If you are a stay-at-home parent and do not work or are not looking for work, you would not qualify for the credit.

How much is the credit?

The answer is it depends.  The credit is 35% of qualified expenses for taxpayers with adjusted gross income (AGI) of less than $15,000.  The credit percentage goes down one percent for every $2,000 your AGI increases until the credit percentage hits its lowest percentage which is 20%.  Therefore, taxpayers with AGI in excess of $43,000 see a tax credit of 20% of qualified expenses.  In addition, the credit is available on the first $3,000 of expenses for one child or $6,000 for two or more children.  As a result, the maximum credit you can receive using the 20% credit rate is $600 for one child or $1,200 for two or more children.

What expenses would qualify? 

The typical dependent care expenses would qualify, like if you send your child to day care during the day.  Another qualification, outside of daycare, is summer camp.  One important thing to know is it must be a day camp.  If your child stays overnight, it does not qualify.  Some examples may include sending your child to camps run by the YMCA or other organizations, as well as sending your child to a camp that specializes in something like basketball or horseback riding.

What information do you need in order to take the tax credit on your tax return? 

You will need the camp name, address, and taxpayer Identification number.  A lot of times the organization will include their identification number on the invoice.  If it is not included on the invoice, you can ask and they should be able to provide it to you.   All of this information then gets reported on Form 2441 to be included with your tax return.  Therefore, when you send your kids to camps this summer, make sure you save your receipts and have them available when it is time to file your tax return.

Can I pay for summer camp costs with my dependent care FSA?

First of all, you might be thinking what is a dependent care FSA?  It is a flexible spending account that you can make contributions to on a pre-tax basis through your employer.  So, a lot of the time this benefit can be more advantageous than taking the dependent care credit.  The maximum amount you can contribute to the dependent care FSA in a given year is $5,000.  You also need to be careful about contributing more than you need to as the dependent care FSA is a “use it or lose it” account.  For example, if you contribute the maximum $5,000 to your FSA but only incur $4,000 of child care expenses, the $1,000 is lost.  In addition, the $1,000 that you contributed on a pre-tax basis but did not use is considered to be taxable wages on your tax return.  Having said all of that, yes, you can pay for summer camps with your dependent care FSA.

If you have any additional questions as it pertains to summer camps or other dependent care expenses including the dependent care FSA’s, feel free to reach out to me, or another member of TeamDKB’s individual tax team.