Sending Your Kids to Summer Camp? Don't Forget to Claim This Tax Break
- Summer camp can be a major expense for working families.
- There's a tax credit that could help offset that cost.
Did you know you could qualify for tax savings?
There's a reason working parents commonly have to make a huge dent in their savings once the summer rolls around. Parents who rely on school for childcare don't get that option in the summer. Rather, they have to pay for that care, which generally means signing their kids up for camp.
The cost of full-time camp can vary depending on where you live and the type of program you choose. But it's not uncommon to have to spend several thousand dollars -- per child -- for this summer activity so you can hold down a job.
The good news, though, is that there's a special tax break available for families who pay for childcare, and that extends to summer camp. And so if you're writing a huge check this summer, it pays to keep this benefit in mind when you file your 2022 taxes next year.
Be sure to claim the Child and Dependent Care credit
The Child and Dependent Care credit is a credit for parents who have to bear the cost of childcare. Unlike a tax deduction, which merely exempts a portion of your income from taxes, a tax credit is a dollar-for-dollar reduction of your tax liability.
So, say you're entitled to a $1,000 tax deduction and your effective tax rate is 22%. That means you save $220 thanks to that deduction. With a $1,000 tax credit, you get to enjoy a full $1,000 in tax savings.
Now that that's out of the way, let's talk about how the Child and Dependent Care credit works. Like many credits, the value of the Child and Dependent Care credit hinges on your income, and there are rules involved.
For one thing, the credit only applies to children age 12 or younger. The logic there is that older children can look after themselves, so if you decide to send your 14-year-old off to camp, that won't count as an eligible childcare expense.
You must also pay for childcare such as summer camp so that you (and your spouse, if you're married) can work or look for work. So, if you're a parent who doesn't have earned income and you send your kids to summer camp because it's fun for them, you unfortunately cannot claim the credit.
You also can't claim the Child and Dependent Care credit if you need childcare due to being a full-time student. Rather, you need to show earned income to be able to claim it.
From there, things get a little tricky because you can't simply write off your summer camp costs and call it a day. Rather, you can deduct a percentage of up to $3,000 in childcare costs for one child, or up to $6,000 for two or more children. That percentage ranges from 20% to 35%, depending on your income.
So, let's say you have two kids and summer camp costs $4,000 per child, or $8,000 total. The total expense you can claim is still capped at $6,000. If you're a lower earner, you may be able to deduct 35% of that cost, or $2,100. If you're a higher earner and can only claim 20% of that cost, you're looking at a $1,200 credit.
Keep in mind that these limits increased substantially for the 2021 tax year only. This year, those higher limits don't apply.
Get the tax break you deserve
Paying for summer camp is a burden for many families. If that's a cost you have to bear, be sure to keep your tuition receipts so you can claim the Child and Dependent Care credit on your taxes next year.
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