2 Ways to Write Off Summer Camp Costs

If you've got both a job and young kids, you've probably also got summer camp expenses. And summer camp isn't cheap. SummerCamp.org estimates that a "full-season" (7 to 9 week) session will set parents back anywhere from $3,500 to $11,000 per child.

On the bright side, some of your summer camp costs are likely to be deductible. The write-offs won't defray all of your expenses, of course, but they can make the bite a bit more manageable.

What can you write off and how do you do it?

The basics
To write off your babysitting, day care or day camp costs, you've generally got to have two things: Children under the age of 13 and a two-wage household. That's essentially because day care costs are deductible only if they're necessary to allow both parents to work. (There's an exception for a parent that's going to school or is disabled and unable to care for the children without help, though.)

The options
There are two ways you can deduct the summer camp bills (or the after-school care that your kids might require during the regular school year). You can pay the bills through a dependent care account offered through work, or you can claim the Child and Dependent Care Tax Credit when you file your tax return.

Which is better? That depends primarily on your tax bracket. People with two children and relatively big expenses relative to their wages are usually better off with the credit. Those who have just one child and/or higher incomes are likely to be better off with the dependent care account.

Figuring your break
Here's why: The Child and Dependent Care Credit is calculated as a percentage of allowable expenses. You get to claim between 20% and 35% of your allowable expenses of up to $3,000 per child/$6,000 per family. Allowable expenses are any costs related to day care provided by an unrelated third party.

Theoretically, that could give a family with two children a write-off of up to $2,100 -- 35% of $6,000. But theory and reality are two different things.

The biggest percentage write-offs go to those with the lowest incomes. Only those earning less than $15,000 annually get to write-off 35% of their costs. The chance that this consumer could afford a $6,000 day care expense is nil. Those who earn $43,000 or more, are able to write off just 20% of their allowable day care costs. The bottom line: For most families, the maximum benefit you can get from the Child and Dependent Care credit is $1,200 -- 20% of the $6,000 maximum allowable expenses for two children or more. (If you have just one child in day care, your maximum write-off is $600.)

The other option is to pay your bills through a Dependent Care Account. Dependent Care accounts, offered through most large employers, allow you to set aside up to $5,000 of your wages on a pre-tax basis. The money comes out of your paycheck in ratable portions -- that would be $192 each two weeks, for those contributing the maximum amount. And the IRS acts as if you never earned that money.

For someone in the 31% federal bracket, that saves a tidy $1,550 in federal taxes. And it is likely to cut your state tax bill too.

Incidentally, this maximum is the same regardless of whether you have one child or two. Families with just one child would be really smart to use a dependent care account because it would provide more than twice the tax benefit of the Child and Dependent Care credit.

Rules and requirements
Naturally, there are copious rules and regulations determining who can take either of these breaks and how they must claim it. Here's the summary version.

  • If you use a Dependent Care Account, you employer will provide you with forms to sign up and information about how to get reimbursed for your day care expenses. These accounts are becoming increasingly consumer-friendly, with many employers providing the equivalent of a credit card to pay the bills.
  • For either tax benefit, you must provide the IRS with the name and Social Security number (or Taxpayer I.D. number for a company) of the person or company caring for your child.
  • The child care provider must be an adult (over 18).
  • The care provider can be a relative, but cannot be a dependent.
  • You cannot write-off the cost of overnight camps -- just the cost of the day care.
One caution: If, instead of sending the kids to summer camp, you hire a nanny to take care of your kids, you may be subject to household employment taxes, which (speaking from experience) are a nightmare. If other tax issues haven't sent you screaming to a tax professional, paying nanny taxes probably should. Be sure you ask your accountant how hiring a nanny might affect your tax situation before you make that leap.

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