IRS helps cover the costs of looking after kiddos … even in the summer

Most working parents are well aware that they get a tax break to help cover the costs of sending their children to day care during the school year. What they might not realize is that now with their children in alternative care for the summer, some of those tax advantages continue to be available.

Who is eligible for child care tax credits and deductions?

To qualify for the dependent care credit, both parents (if filing jointly) must have earned income during the year. You must pay child and dependent care expenses so you can work or look for work. Also, the child must be your dependent and under 13 when the care was provided.

What types of programs qualify for the credit?

Allowable expenses include only expenses for care, including expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten. Expenses for before- or after-school care of a child under 13 also are considered qualified expenses. Expenses for day care centers, dependent care centers, day camps, and home care providers who regularly spend at least eight hours each day in your home are also allowed.

What doesn’t qualify?

Expenses such as food, entertainment, lodging, and clothing are not qualifying expenses.

How does it work?

If you exclude or deduct dependent care benefits from your income in a flexible spending account (section 125 plan), the total amount you may exclude or deduct is $5,000 if married filing jointly. If you use the tax credit, the amount used to calculate the credit is $3,000 for one child or $6,000 for two or more children. This amount is then multiplied by the applicable percentage (which ranges from 20% to 35% of the allowed expense, based on income levels). If you deduct an amount of less than $5,000 from your wages and find you have additional expenses, the difference subject to the dollar amounts above would be used to calculate the credit.

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