Flexible spending accounts (FSA) can be a great way to reduce your taxes while you spend on child care. You can use money from your FSA to pay for summer camps and after-school activities. Certain after-school activities and care expenses are covered as well. If your company doesn’t offer an FSA, you can also cover some of the costs of camp and child care with the child care tax credit.
There are a few stipulations to consider, one being that only kids under 13 years old are covered. Only day camps are covered, not overnight camps, and both parents must be working or attending school full-time. Also, the same expenses cannot be covered by FSA and the child care tax credit. The child care tax credit covers only a percentage of child care costs and varies between 20-35% depending on your household income. If your adjusted gross income is over $43,000, your child care tax credit is limited to 20%.
Other key points you should know about the tax credit:
- Expenses are deductible only if the main purpose is the “person’s well-being and protection.” Summer school, private school tuition, tutoring and overnight camps don’t qualify.
- Day care centers or after-school care qualifies if only if the center complies with all state and local regulations.
- There is a maximum yearly dollar amount of $3000 for one child, or $6000 for two or more children.
Are online classes and camps eligible for FSA or tax credit?
In 2020 and 2021, many more families enrolled their kids in an online course or virtual camp. Unfortunately, some FSA’s are not approving online courses as an eligible dependent care expense because the parents were at home during the course and thus providing child care.
IRS publication 503 says “Expenses are for the care of a qualifying person only if their main purpose is the person’s well-being and protection.” One FSA administrator states in a recent notice that an online platform with audio and visual functions satisfies the requirement. But some FSA plans state that if the parents are at home, then the parents are providing care for the child.
If I paid for a camp in 2020, but we attended in 2021, what year is my expense tax deductible?
If you paid for camp in one year, but your kids did not attend until the next year, you would count expenses in the year your kids attended.
How can I get the EIN number for the camp or class provider?
When you register on ActivityHero.com, your registration confirmation email will include the EIN and other information you need to claim your tax credit or use your FSA funds.
Please keep in mind that we know a fair bit about summer camps and kids activities, but we are NOT tax experts. There are additional restrictions to this tax credit, so read IRS publication 503 carefully or consult your tax advisor before claiming the tax dependent care credit.