“Summertime, and the living is easy,” goes the song, but for working parents, summer is anything but simple. When schools close, many families struggle to secure childcare to fill workday hours. Summer camps are a great option, but the price tag is a hefty one. According to the American Camp Association, day camps can cost an average of $199 per week, up to $800 per week or more.
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.
How can a DCFSA help pay for day camp?
To use a dependent care FSA for reimbursement on day camp for children , they must be under the age of 13. They must also be claimed as dependents on the federal income tax return. You are allowed to contribute $5,000 a year to a DCFSA per household, or $2,500 for married couples who file separately. (Note: The American Rescue Plan Act of 2021 has temporarily increased these limits to $10,500 per household and $5,250 for married couples who file separately. This is for the 2021 calendar year only and must be adopted by the employer.) The activity the camp specializes in does not matter as far as eligibility is concerned (whether it is sports-oriented, for example).
Other eligible expenses include:
Babysitting (work-related whether in your home or outside the home, can be done by a relative not listed as a tax dependent.)
Before- or after-school programs
Child care or sick-child care while you work
Nursery school, nanny fees, or preschool.
Expenses for a housekeeper who takes care of a child.
Overnight camps do not quality as a work-related expenses
Day care for a child 13 or older
Kindergarten or school tuition
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%.
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 Oaktreecamps.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.