Day Camp Expenses for Income Tax Credit

---by Emery C. Duell, Esq.

       In these times of economic concern, some households that are two earner households may have one wage earner who can not continue to work while schools are out due to child care needs. Alternate child care facilities to take the place of school attendance are used. The cost of summer child care may include day camp attendance.

       Internal Revenue Code Section 21 provides a small income tax credit based on child care expenses if restrictions are met. The credit is based on the expenses paid for day care of a person who is the taxpayer’s dependent under age 13 which expenses are incurred so the taxpayer can have earned income from work. The credit varies with gross income and ranges from 20% to 35% of the expenses. The expenses are limited to $3,000 per year for one dependent child and $6,000 for two or more dependents.

       The details are that the taxpayer must have earned income. The countable expenses cannot exceed the earned income. If married, the measuring income is the smaller of the two joint incomes.

       The expenses may be incurred before the income is earned, e.g. job hunting, provided the taxpayer successfully finds work and receives earned income during the calendar year facilitated by the expenses. The focus is on expenses that allow a taxpayer to earn income during a calendar year. The work can be part time.

       Specifically with regard to summer camp, only day camp can be used as an expense. Overnight camp is not considered by IRS to be work related.  Another nuance IRS follows is that if the day camp provides transportation and charges for it, the cost is day camp work related. If the taxpayer provides, or pays someone other than the day camp to provide, transportation, the cost is not work related.

       As an example, a husband and wife have one child under age 13. The combined income of both spouses is $125,000. Because of a summer day camp, one spouse is able to work part time during the summer earning $5,000. The day camp charges $3,500 for the summer. The expenses do not exceed the smaller income. However, the expenses exceed the one child limitation and only $3,000 may be used to calculate the credit. The credit is based on 20% of the $3,000 and is $600. Since it is a credit, it directly offsets income tax which is a function of the total joint income. The affect of a $600 credit on all income is equivalent to sheltering $2,400 in income for this couple.

       Come next spring and the tax preparation season, do not overlook day camp expenses.