While school is out, many families must find care for their young children. Often, that means day care or camp. Fortunately, money that you spend for such purposes may qualify for a dependent care tax credit. The basic rules:
* As much as $3,000 that you spend on one child under age 13 will qualify for the credit.
* For two or more children, the maximum expense that will be covered by the credit is $6,000.
* To get the dependent care credit for one or more youngsters, the money must be spent for so that a parent can go to work or be a full-time student. Home care, day care, and day camp tuition will qualify; that’s not true, though, for money you spend on overnight camp.
Assuming that your family income is over $43,000, the tax credit rate is 20 percent. Lower incomes get a higher tax credit rate, scaling up to 35 percent.
Suppose you and your spouse both work and your joint income exceeds $43,000. While your two young children are out of school, you send them to day camp, paying $8,000 in fees this year. In this situation, the first $6,000 is eligible for a 20 percent credit, which cuts your tax bill by $1,200: 20 percent of $6,000.
