Get a Tax Break on Child-Care Costs

Can I take the child-care tax credit for the cost of summer camp?

If it is a day camp, not an overnight camp, then the cost of camp can count toward the child-care credit. The camp can be both over school vacations and during the summer. To qualify, your child must be younger than 13 and must attend camp while you and your spouse work or look for work (one spouse can be a full-time student while the other works). For parents who are divorced or separated, the custodial parent is usually the one who can claim the credit.

Tax Breaks for Child-Care Expenses

The cost of a nanny, babysitter, day care or preschool also counts if you use them so you can work. School tuition drops off the list of qualifying expenses once your child reaches kindergarten, but before-care and after-care costs do qualify.

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There is no maximum income cut-off to qualify, but the smaller your income, the larger the credit. You can count up to $3,000 in child-care expenses for one child or up to $6,000 for two or more children. Families earning less than $15,000 can claim a credit for up to 35% of those expenses. The size of the credit gradually decreases as income rises. For instance, families earning more than $43,000 can claim a credit for up to 20% of eligible costs. To translate those percentages into dollars, families with one qualifying child can get a credit of $600 to $1,050, depending on their income; families with two or more children can get a credit of $1,200 to $2,100. This is a credit, not a deduction, so it lowers your tax liability dollar for dollar.

To claim the credit, file Form 2441 with your tax return and include the employer-identification number of the camp or the Social Security number of the care provider. Keep copies of the bills you pay to the camp and the employer ID number in your tax files so you have them when you’re ready to file. For more information, see IRS Publication 503, Child and Dependent Care Expenses.

If you have a dependent-care flexible-spending account at work, you could be better off using money from that account rather than taking the child-care credit, especially if you’re in a higher tax bracket, because the money in the FSA bypasses federal taxes as well as Social Security taxes. The rules for qualifying are the same as they are for the child-care credit -- the child must be younger than 13 and must attend the camp or receive care while you work.

You can’t use money from the dependent-care FSA and take the child-care credit for the same expenses, but if you have two or more children and you’ve used $5,000 from your FSA, you can take the tax credit for an extra $1,000 in child-care expenses, which can cut your taxes by an extra $200 if you qualify for the 20% credit.

As the "Ask Kim" columnist for Kiplinger's Personal Finance, Lankford receives hundreds of personal finance questions from readers every month. She is the author of Rescue Your Financial Life (McGraw-Hill, 2003), The Insurance Maze: How You Can Save Money on Insurance -- and Still Get the Coverage You Need (Kaplan, 2006), Kiplinger's Ask Kim for Money Smart Solutions (Kaplan, 2007) and The Kiplinger/BBB Personal Finance Guide for Military Families. She is frequently featured as a financial expert on television and radio, including NBC's Today Show, CNN, CNBC and National Public Radio.