Friday, July 18

Tax help for some camp costs

But c'mon, admit it. With the summer break about half over, aren't you ready for school to start again?

One of the main reasons parents dread summer, or so they tell childless me, is that they have to make extra care arrangements when class is out.

That's not to say that our schools are giant babysitting facilities. But it's sure a lot easier to come up with supervision for young Johnny and Janie if you only need to book a few hours a day instead of a full eight or so.

So camp is the solution for many parents during the summer. In most cases, it's a win-win. Mom and dad get some help in occupying the youngsters' time and the kiddos get some fun new experiences.

Down here in music-crazy Austin, Texas, rock camps are the rage.

A sign of our times is the American Idol Camp, which promises to help your budding singing star take his or her skills to the next level, dawg. I'm presuming that the counselors are a bit friendlier than Simon Cowell.

Bankrate's " Summer camps offer endless variety" offers some more suggestions, along with " 10 ways to tame summer camp costs."

Tax credit for camp care: One other avenue for camp financial aid comes from your favorite, Uncle Sam. Of course, since he has so many young nieces and nephews, he does have some rules.

Child care costs you incur for a child younger than 13 generally can be claimed under the Child and Dependent Care tax credit as long as the expenses help you do your job.

And in some cases, camp costs also might meet the tax credit criteria.

But, since this is the IRS we're talking about, you must meet a couple of requirements before you and your kids will be happy campers.

The first prerequisite is that enrollment of your child in camp allows you to go to, or look for, work. If you're a non-employed parent and aren't looking for a job, but you just want to get the kids out of your hair, Uncle Sam understands but he won't help pay.

The other big condition is that the camp be one that operates only during the day.

True, having the kids off at a sleepover camp will make getting to work much easier, but the IRS doesn't consider an overnight camp a legitimate work-related expense.

Some, but not all, costs covered: There also are monetary limits. Not all care costs, camp or otherwise, are tax credit eligible.

In computing the credit, you can count only up to $3,000 in expenses for one qualified dependent or up to $6,000 for two or more. And even then, you only get to claim up to 35 percent of the costs. But, hey, every little bit helps.

You can get the full, official scoop on the child care tax credit in general and camp and other care considerations in IRS Publication 503, Child and Dependent Care Expenses. This Bankrate tax tip, " IRS can help you look after the kids," also has details on claiming the child care credit.

HSAs becoming more popular

John McCain and Barack Obama agree that a key to improving the state of U.S. medical coverage is reining in escalating costs. But they disagree on just how to do that, with the major difference being just how much government involvement there should be in America's health care system.

For those of us not on Medicare, Uncle Sam's presence in our medical lives is most often felt in connection with taxes.

Many medical costs are deductible -- as long as you itemize and you have paid enough (7.5 percent of your adjusted gross income).

There also are medical flexible spending accounts, company-offered savings plans in which you set aside pre-tax dollars to pay for deductibles or treatments that aren't covered by your employer-provided health insurance.

But one of the fastest growing tax-related medical options is a health savings account, or HSA.

HSAs are tax-free savings vehicles that became available in January 2004. Anyone younger than 65 can open an HSA as long as they also buy a qualified high-deductible medical policy.

Essentially, you get tax breaks for opting to carry insurance that requires you to pay more of your medical costs. You pay those added out-of-pocket expenses from your tax-favored HSA.

The tax breaks appear in several ways. The first is a deduction on your tax return for the amount contributed each year to your HSA. The amount varies, depending on your coverage, family size and annual adjustments. Even better, you can take an HSA deduction as an above-the-line adjustment, meaning you don't have to itemize to claim it.

Then there are the tax savings on the HSA itself. The account is like an IRA, but specifically for medical expenses. So any money your HSA earns is federally tax-exempt, as long as it's used to pay for eligible medical expenses.

HSAs more appealing: If you have traditional health care coverage at work, you probably won't be able to open an HSA because most mid-sized and large companies don't offer high-deductible policies to their workers. But many small companies and self-employed individuals find the high-deductible plan/HSA combination very attractive.

The most recent IRS data shows that HSAs are replacing other tax-preferred options for health care spending, according to an analysis by the National Tax Office of Grant Thornton LLP, a global accounting, tax and business advisory firm.

The HSA deduction cost the government $869 million in 2006, up from $511 million in 2004. At the same time, deductions for employee-offered flexible medical savings accounts dropped from $67 million to $35 million.

Not to dismiss Grant Thornton's findings -- the IRS numbers are what they are -- but is the HSA growth a sign of changing employment and health care options or a statement on how well health savings accounts meet individual medical needs? Probably a bit of both.

While the Democratic and Republican candidates duke it out over taxes and health care, it might be worthwhile for you and I to examine all our medical insurance options.

If an HSA interests you, check out HSAInsider.com or the National Association of Health Underwriters for more information and help in finding insurance companies that offer the accounts.