Many parents pay for childcare or day camps in the summer while they work. If this applies to you, your costs may qualify for a federal tax credit that can lower your taxes. Here’s what you need to know:
The camp must be for your child who is under 13 or a person who is your dependent and unable to care for themselves. To learn more about this requirement, see the Qualifying Person Test.
You and your spouse, if you are married and filing jointly, must have earned income unless your spouse is a full-time student or unable to care for themselves. Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. A net loss from self-employment reduces earned income. Earned income also includes strike benefits and any disability pay you report as wages.
Working or Looking for Work
You must pay for the day camp so that you and your spouse, if married, can work or look for work. Your work can be for others or in your own business or partnership. It can be either full time or part time.
The credit doesn’t apply to overnight camps or care. The payments for the day camp for a child or dependent to must be made to someone you cannot claim as a dependent. You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. If you are paying an older child, they must be at least 19 by the end of the year and cannot be your dependent. You cannot pay your spouse.
If you are married you must file a joint return unless you are legally separated or living apart from your spouse. You can also claim the credit if you are single, head of household, or qualifying widow(er) with dependent child.
Identify the Provider on Your Tax Return
To claim the credit you must file Form 2441 and provide the name, address and taxpayer identification number of the care provider. If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. If the care provider is an organization, then it is the employer identification number (EIN). You do not have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number.
Calculating the Credit
The credit you can claim is based on a percentage of your qualifying dependent care expenses. There is a maximum limit on qualifying expenses of up to $3,000 for one qualifying person or $6,000 for two or more qualifying persons. The percentage of expenses that are allowed as the credit is based on your and your spouse’s, if married, income. For more on how to calculate the credit see Publication 503 – How to Figure the Credit.