Tax Talk (especially read blue highlight)
Current tax laws ofer a variety of credits and deductions related to children, their care, and education. One such credit is the child and dependent care credit. This provision allows taxpayers to reduce the amount of taxes owed by a portion of their child care expenses.
Several criteria have to be met in order for these expenses to be eligible for the credit. They include:
1)the care must be provided for a dependent under the age of thirteen or a person who is physically or mentally not able to care for himself
2) the taxpayer must have earned income during the year
3) the expenses must be paid to allow you to work or look for work
4) the payments cannot be to another dependent
5) the care provider must be indentified on your tax return
6) you cannot have a filing status of married filing separately.
The maximum amount of childcare expenses that can be used to compute the credit is $3,000.00 for one child and $6,000.00 for two or more dependents. This amount of childcare expenses, up to the maximum as stated above, is then multiplied by a percentage based on your adjusted gross income to figure the credit amount for which you are eligible. The credit starts at 35% of your qualified expenses and decreases to 20% as your adjusted gross income increases.
Most people realize that the credit applies to day care for young children and after school care for older kids, but they are not aware that the cost of day camp for children can also count as an expense toward the credit. The cost of these camps, which are often used during the summer or other extended school breaks, can be a child care expense regardless of the subject matter. Even if a camp specializes in soccer, computers, or art, it can be considered a form of child care that allows the taxpayer to work. However, the cost of overnight camps cannot be counted as childcare expenses since they are responsible for more than just the child's care while the parent is at work.
While the day camp information is still fresh in your mind from the summer, remember to contact their offices to obtain their employer identification number, which is asked for on the dependent care form. You can use a Form W-10, Dependent Care Provider's Identificaiton and Certification, to obtain this information; it is also often listed on an invoice or correspondence from the day camp. As always, remember to retain proof of the amount paid to the child care provider. For more information, please refer to IRS Publication 503, Child and Dependent Care Expenses, available at www.irs.gov.
Jennifer Kinlaw is a Certified Public Accountant and a member of the SECU Accounting staff. The material above is intended to be accurate; however, consultation with appropriate legal or accounting professionals for assistance is recommended.
This was copied from the September 2007 Volume 23, Issue 9 of the SECU newsletter. www.ncsecu.org