Summer Daycare Expense: Are They Deductible?

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iStock

As the kids head back to school and return to  their normal routine, you may be wondering if their summer day care or summer camp expense is tax deductible. While they were necessary in order to provide your kids with supervision during the summer, it’s hard not worry about the expense. Here’s a look at how the Child Care Tax Credit as it applies to summer camps and summer daycare.

Eligible programs:

  • Day camps. Overnight camps are not eligible per the IRS guidelines
  • Daycare
  • Babysitter costs

If your children are under the age of 12, you can deduct a portion of the program cost or tuition. Likewise if your child has a disability and is over the age of 12, you can also apply the credit to their summer daycare/day camp costs.  Parents of qualifying children with disabilities can also deduct the cost of medications, home health care, and doctor visits.

As a parent or legal guardian of a qualifying child, you must use one of the following filing statuses in order to be eligible for this credit: single, Head of Household, qualifying widow or widower with a dependent child, or married filing jointly.

Additionally, you must be either:

  • Be a full-time college student for at least five months during the tax year
  • Be working full-time
  • Be unemployed and seeking work

You must also meet the income guidelines for each tax year as established by the IRS. If your adjusted gross income for 2015 is $15,000 or less for example, you can claim up to 35 percent of child care expenses on your tax return. As your income increases, the deductible percentage decreases.

As with any tax deduction, you’ll need receipts and records to substantiate your claim at the end of the year; such paperwork will come in handy if the IRS comes calling. If you didn’t collect any receipts or other records during the summer, most daycare and day camp programs will be happy to provide them to you; just remember to ask well ahead of tax day.

Summer child care and day camps can be expensive, but if you and your child meet IRS guidelines, you could deduct up to 35 percent of the costs at tax time. Doing so will also lower your overall tax liability and provide much-needed help with summer child care expenses.

Tax Tips For Single Parents

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freeimages

As of 2014, there are over 12 million single-parent families in the United States. If you are among those single parents, no one needs to tell you that single parenthood has its own set of financial stressors. The IRS has a series of child-related tax breaks that could ease some of the financial burden for you. Read on to find out how these tax breaks can help you and your family.

Child Tax Credit

The Child Tax credit allows parents to claim up a $1,000 tax credit for each qualifying child 17 and younger. This tax credit can reduce your overall tax liability, so it can have more positive impact on your bottom line than a deduction can.

Qualifying Child

You are eligible to claim the Child Tax Credit if your child or children meet the following criteria:

  •        Under 17 years old at the end of the tax year
  •         They didn’t provide over half of their own support during the tax year
  •        Lived with you for more than half the tax year
  •        You can claim them as a dependent on your tax return
  •        Your child is a US resident, US national or US resident alien.

Furthermore, if you are a low-to-moderate income earner, you may be able to receive any excess credit as a refund with the Child Tax Credit.

Child Care Expense Deduction/Dependent Care Credit

If you have children under 12 (and eligible to be claimed as a dependent) and are currently employed or seeking employment, you could reduce your overall tax liability by claiming child care expenses. However, if your child has a disability or is unable to care for themselves, the under-12 limitation doesn’t apply.

Day care options such as child care programs, home-based child care, nannies/babysitters and/or summer camps qualify under this credit. You will need to get the EIN at the end of the year for any camps or programs (such as the Y or after-school programs) or the social security number for any individuals who provide child care on an ongoing basis.

Limitations:

This credit is limited to up to $3,000 per year for one child or to $6,000 per year for two or more children. If you are married but filing a separate return, you  can’t claim the credit.

Head of Household

The Head of Household tax filing status will allow you to claim a higher standard deduction and can further reduce your tax liability. Your children must live with you for more than half the year and they must meet the Qualifying Child criteria (see above). You’ll need to be single as of the last day of the year and to provide more than half of the overall household support in order to file as Head of Household.

Through programs such as the Child Tax Credit, the Dependent Care Credit, child care expense deductions and the Head of Household filing status, the IRS hopes to lessen the tax burden for single parents.

For more detailed information on the Child Tax Credit, refer to IRS Publication 972 and for more information on the Dependent Care Credit, check out IRS Publication 503

If the thought of reading IRS jargon leaves you cold, give us a call or click the white “Start Chat” button at the top right corner of our website. You’ll be able to schedule an appointment with a knowledgeable tax pro who can answer your questions and even file your return for you when the time comes.

 

 

 

 

A Nanny Tax Primer

Photo:freeimages.com
Photo:freeimages.com

 

 

Hear the term “Nanny Tax” and most of us think it only applies to rock stars and politicians. After all, their kids have full-time nannies and tutors, right? Don’t let the term “Nanny Tax” fool you, however. Even the average working parent may be obligated to pay Nanny Tax under certain circumstances. Here is a brief primer on the Nanny Tax:

The Basics

The Nanny Tax is actually a payroll tax, just like the Medicare, Social Security  payroll deductions that your employer takes each pay period. You’ll see them on your pay stub as FICA. Typically, these taxes are based on 15.3% of your earnings with an even split between you and your employer; 7.65% is deducted from your check and your employer sets aside 7.65% which is then paid in their quarterly payroll taxes.

The FUTA (Federal Unemployment Tax Act) tax is also deducted from your paycheck  and included in the 15.3%. It is contributed to the federal unemployment insurance fund and is paid out in the form of unemployment insurance in case of layoff or job loss. Some states also maintain their own state-based tax (SUTA).

The Nanny Tax works the same way. The IRS considers babysitters, nannies, housekeepers and other household personnel as employees because they must meet a specific set of guidelines in the performance of their job duties: start/finish time, specific tasks in the course of their workday…the same way your employer regards you and your work role.

Does The Nanny Tax Apply to You?

Let’s suppose you found a great sitter for your kid(s) and that person sits for you often. If that person earns $1900.00 or more from you for a given year, you will be required to pay “Nanny Tax” on their earnings since they are considered a household employee under IRS guidelines.

Exceptions

You won’t need to deduct Social Security and Medicare taxes (FICA) if your in-home child care provider is your spouse or other child under 18, or if they baby sitter is under 18.

You won’t need to deduct FUTA if the sitter is your spouse, parent, or minor child.

This is a relief to a lot of working families since many of them rely on other family members for child care.

It’s easy to think of the Nanny Tax as something only rock stars and politicians will need to worry about. After all, “nannies are for rich people.” However, if your child’s sitter earns more than $1900.00 in the course of caring for your children during the year, you, too, will have to pay  Nanny Tax payroll deductions.

In the scheme of things, however, it might be seen as a small price to pay for safe, consistent and reliable child care for busy working families.