Tax Tips How to Get a Tax Break for Summer Child Care Read the Article Open Share Drawer Share this: Click to share on Facebook (Opens in new window) Facebook Click to share on X (Opens in new window) X Click to share on LinkedIn (Opens in new window) LinkedIn Click to share on Pinterest (Opens in new window) Pinterest Click to print (Opens in new window) Print Written by Ginita Wall Published Apr 16, 2024 - [Updated Jun 12, 2024] 4 min read Reviewed by Jotika Teli, CPA Lena Hanna, CPA “Summer time, and the living is easy,” goes the song. Even though tax day has come and gone, it is never too early to begin planning out your summer vacation! Easy if you are a kid, that is. For working parents, the additional burden of summer child care is far from easy. Summer child care can get expensive. Fortunately, Uncle Sam is there to help through flexible spending accounts and dependent care credits. Table of Contents Dependent Care Flexible Spending AccountsChild and Dependent Care Credit Dependent Care Flexible Spending Accounts If you have a Dependent Care Flexible Spending Account (DCFSA) through your employer, you can set aside as much as $5,000 per household from your salary to pay for dependent care ($2,500 if you are married filing separately). That’s a big benefit because the funds you contribute to your FSA aren’t subject to income taxes or payroll taxes such as social security and Medicare taxes. These plans are also sometimes referred to as Dependent Care Assistance Plans (DCAPs) or Dependent Care Reimbursement Accounts (DCRAs). There are a few caveats: The person receiving the care must be your child, or if a dependent, must be under the age of 13 or incapacitated. The qualifying child must have lived with the taxpayer for more than half of the year. The qualifying child cannot have provided over half of their own support during the year. The qualifying child must be younger than the taxpayer claiming the child. If you are married, both spouses must earn an income of $5,000 or more unless your spouse is disabled, a full-time student, or looking for work. The funds you set aside must be used by the end of the year, or else they may be lost. And here’s the kicker: You must sign up for the payroll deduction during your employer’s enrollment period at the beginning of the year. Now, assuming that you have your Dependent Care FSA in place, what kind of expenses qualify? Child care providers. In order to be reimbursed for your child care through your FSA, your child care provider must provide you with a taxpayer identification number (Employer ID number or Social Security number). That means they must report the income on their own tax return. Summer camps. Summer day camps qualify for reimbursement, but overnight camps do not. That’s good news for parents who enroll their kids in a variety of day camps, such as soccer camp, tennis camp, computer camp, and the like. But if your child needs remedial schooling during the summer, forget it: tutoring and summer school are not eligible. Payments to Grandma. If you hire Grandma or another relative to take care of the kids this summer, you can be reimbursed from your Dependent Care FSA plan as long as Grandma has a Social Security number and reports the income on her tax return. Other relatives may qualify as well unless they are your dependents. So you can’t pay your 16-year-old to take care of the younger kids and claim her as a dependent. Child and Dependent Care Credit If you don’t participate in a Dependent Care Assistance Program, you are still entitled to claim the child care expenses we have been discussing with the Child and Dependent Care credit. If your Adjusted Gross Income AGI) is $15,000 or less, you can claim a federal tax credit of as much as 35% of the costs you pay, up to $3,000 per child ($6,000 total). As your AGI increases, the credit goes down, settling at 20% if your AGI is $43,000 or more. That’s still a good amount: if you have two children and pay $3,000 of qualifying child care expenses for each child, you’ll get a federal tax credit of $600 for each child. That will reduce the taxes you owe. Since you can’t claim a tax credit for expenses that are reimbursed to you through your Dependent Care FSA, which would benefit you the most, the DCFSA or the tax credit? Let’s say that you are in a 22% federal tax bracket and contribute $5,000 to your DCFSA. That will save you $1,100 in federal income tax and may save you in state taxes as well. In addition, you’ll save 1.45% in Medicare tax and up to 6.2% in Social Security tax since the amount contributed to the DCFSA would be pre-tax dollars and, therefore, would not be included in your taxable wage amounts on your W-2 Form. Now let’s say that you claim the expenses as the child and dependent care credit instead of contributing to a dependent care assistance program. Assuming your credit is 20%, that $5,000 in child care expenses will save you $1,000 in federal income taxes. If your income is low, you’ll qualify for the higher 35% tax credit, but most people at that income level wouldn’t pay federal tax anyway, and the credit is not refundable. So for most parents, the DCFSA income exclusion is best. But whichever you choose, be sure to reap the tax-saving benefits of child care and day camp expenses this summer. No matter what moves you made last year, TurboTax will make them count on your taxes. Whether you want to do your taxes yourself or have a TurboTax expert file for you, we’ll make sure you get every dollar you deserve and your biggest possible refund – guaranteed. Get started You know your small business—we know business taxes. Our self-employed and business tax experts will ensure you get every tax break with 100% accuracy, guaranteed. Start for free 100% free to start. Pay only when you file. Previous Post Residential Clean Energy Credit: A Homeowner’s Guide Next Post 7 Wedding Expenses That Are Tax Deductible Written by Ginita Wall More from Ginita Wall Leave a ReplyCancel reply Browse Related Articles Tax Help How to File a Business Tax Extension: Deadlines, Forms, and Penalties Tax Tips The White Lotus Tax Lessons: Navigating Gift Taxes, Lump Sum Payouts, Hush Money, and the IRS Tax Questions What Day Are Taxes Due? April 15! How to File for a Tax Extension or Pay Taxes Online Tax Questions What Happens If You File Your Taxes Wrong? Late Filing Penalties, Interest, and More Tax Questions What’s Tax Deductible? A Guide to Mortgage Interest, Long-Term Care, Funeral Expenses, Student Loans, and Roth IRA Contributions Tax Questions Is it Better to Get Your Taxes Done or Do Them Yourself? (And Other Tax Questions Answered) Tax Forms What is a 1099-K Form? How to Report Payments on Your Tax Return (2024) Tax Forms What is a 1099 Form? A Guide to Understanding Your Tax Obligations Income Tax by State Wisconsin State Income Tax in 2025: A Guide Income Tax by State West Virginia State Income Tax in 2025: A Guide