Dependent Care Accounts

Money Matters: Send kids to day camp with help from Uncle Sam

It's summer, and for working parents, that means finding care for children who would normally be in school. One option is day camp, which could cost as much as several thousand dollars.

Luckily, Uncle Sam does offer a break for mom and dad. It's called the Child and Dependent Care Tax Credit, and depending on one’s income, it can be worth up to 35 percent of day camp expenses, with a limit of up to $3,000 for one child and $6,000 for two or more.

“If you have one child, 35 percent of $3,000, the credit would be $1,050,” said Steve Grgas, a certified public accountant. “If you have two children and you pay more than $6,000, the credit would be $2,100.”

In order to get the credit, Grgas says it’s necessary to give tax preparers some pretty simple information.

“Basically, you’re going to be telling the government that you paid x amount of dollars, and the only thing that you need to provide them is basically the camp's name address and EIN number,” said Grgas.

Supervisor Kevin Scott of the Park Slope Day Camp says it’s all listed on the receipt given upon payment.

“It has our tax ID number and everything, all the information that they need,” said Scott.

There are some restrictions, however. For instance, the credit only applies to the cost of day camp; sleep away camp doesn't qualify.

Also, the IRS only offers the credit to parents who are working or actively looking for work. So those with a dependent care-flexible spending account can't double dip.

That means if one pays $6,000 in day camp expenses but puts the maximum of $5,000 in their flexible spending account, the credit will be limited to the $1,000 left over.

Still Grgas says in the long run, the flexible spending account may offer the bigger benefit.

“Because you’re avoiding social security and Medicare taxes on those dollars, so not only are you saving whatever your bracket would be, you're saving about another 7.65 percent on social security and Medicare,” says Grgas.

HEALTH CARE REFORM: Commonly Asked Questions Answered | GDI Insurance

I’ve heard about a number of different health care proposals over the last year. Which one did Congress pass?  The health care reform law is a combination of two bills:

The Patient Protection and Affordable Care Act (H.R. 3590), which was signed into law on March 23, 2010; and The Health Care and Education Reconciliation Act of 2010 (H.R. 4872), which was signed into law on March 30, 2010. 

Does health care reform allow people to keep their current health coverage?   Yes. Nothing in the new law requires individuals to terminate coverage that they had on the date the law was passed. However, due to new coverage requirements, the coverage provided under an individual’s plan may change. Also, employers are not required to offer the same coverage in future years.

If an employer’s health plan existed on March 23, 2010, and the employer has not made certain changes to the plan, the plan may have grandfathered status. Grandfathered plans are subject to many, but not all, of the health care reform law’s requirements. 

Are individuals required to have health coverage?  Not yet. However, in 2014, most U.S. citizens must obtain health insurance coverage or they will be subject to penalties. There are exceptions for low-income individuals and those who are unable to obtain affordable coverage.

What are the penalties for individuals who don’t have health coverage? Beginning in 2014, the penalties for individuals who are not enrolled in coverage will be the greater of a flat dollar amount or an applicable percentage of income. The flat dollar amount for 2014 is $95, $395 for 2015 and $695 for 2016. After 2016, the flat dollar amount is indexed for inflation. The applicable percentage of income is 1 percent for 2014, 2 percent for 2015, and 2.5 percent for 2016 and later years. The penalty for children is half of that for an adult. A family’s total penalty generally cannot exceed 300 percent of the adult flat dollar penalty or the national average annual premium for the “bronze” level of coverage through the insurance exchange.

Does the new law affect dependent care flex accounts and health flexible spending accounts?