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Why There is no Tax Reduction for MathPath Tuition

Note: The answers below are the ones we have always given, but parents have sometimes questioned our answers – see the first Q and A below. Therefore, we have now spent many hours researching federal documents and consulting with lawyers. This effort has confirmed even more strongly our previous answers. We consider the matter closed. We need to spend our time maintaining and improving the mathematics of MathPath.

Educational expenses

No expenses for MathPath may be counted for federal education tax credits or deductions because we are not legally an educational institution. We are not accredited by any educational accreditor nor do we give degrees or course credits.

Child care

In many cases, payments for dependent care for children under age 13, when it allows parents to work, can be counted for US tax credits or deductions, the latter often though the use of pretax dollars in Dependent Care Flexible Spending Accounts (DCFSA). No part of your payment to MathPath is eligible for such tax savings. Do not put money into a DCFSA in anticipation of using it to pay for MathPath. Since DCFSA money is "use it or lose it", you will lose it.

Federal rules about taxes take three forms: laws (US Code), regulations, and publications from IRS. The laws are primary, but usually they are stated in general terms. It is then left to the Code of Federal Regulations (CFR) to work out the details and give examples. Then these examples are restated with further explanation in IRS Publications (Pub 503 for child care tax savings). Also, when regulations are first proposed to flesh out a new or amended law, there is a period where public comment is invited. The Treasury then announces final regulations and provides commentary on how these were arrived at.

However, the federal law for child care expenses has an unusually explicit clause about overnight camps. The law is

US Code TITLE 26 > Subtitle A > CHAPTER 1 > Subchapter A > PART IV > Subpart A > §21:
Expenses for Household and Dependent Care Services Necessary for Gainful Employment

This section was last amended in 2005, and it contains the following Section (2)(A), boldface added by us.

(2) Employment-related expenses
(A) In general
The term "employment-related expenses" means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the taxpayer:

  • (i) expenses for household services, and
  • (ii) expenses for the care of a qualifying individual.

Such term shall not include any amount paid for services outside the taxpayer's household at a camp where the qualifying individual stays overnight.

For the entire Section, click here.

The law does not say anything specific about day camps, nor about after-school centers, nor is it very specific about what constitutes dependent care services as opposed to either schooling or room and board, which do not receive a tax advantage. Therefore, except in the case of overnight camps, all this was left to the regulations to clarify, which were most recently finalized on October 9, 2007. These regulations allowed after school clubs of schools to be counted as dependent care service, allowed an allocation of some costs of other services to be counted as dependent care, and allowed the whole cost of day camps to be counted (even though this cost includes some room and board and often an educational component) for "administrative convenience". But it could do nothing about overnight camps, as their complete exclusion was written into the law. So Federal Regulations, Title 26, Section 1.21-1 (d)(6) echo the law by saying

Overnight camps. Expenses for overnight camps are not employment-related expenses.

For the complete regulations for Title 26, Secion 1.21-1, click here.

Perhaps you might think that an allocation of the day part of the cost of an overnight camp was not given as an example for tax exclusion in the regulations because nobody thought of that example. Not true. During the comment period on the proposed regulations, exactly this allocation was proposed by a commentor and this proposal was rejected. Specifically, the final announcement of the regulations says, in Section 2.f. of the Explanation of Provisions and Summary of Comments:

Cost of overnight camp

A commentator suggested that the credit should be allowed for a portion of the cost of overnight camp allocable to time when parents work. The final regulations do not adopt this comment. Under section 21(b)(2) [of the law], the cost of overnight camp is not an employment-related expense.

For the whole commentary, click here.

Question: The above notwithstanding, families have written to us that they know of overnight camps where a day cost has been broken out. So why can't MathPath do the same?

Answer: Without knowing exact information, we cannot comment with any certainty about such camps. It may be that such camps publicize and run both a day and a night program, with different staff and separate budgets, and that one pays two fees if a child stays overnight. In such cases IRS might consider the overnight part to be just the second part, although our lawyers suggest that even this would be "sailing close to the wind". Or it might be that the programs are not really separate but that so far the division of billing has flown under the radar of IRS. We do know the exact information about Mathpath. We don't run a day program and don't want to run a day program; we believe that the whole residential experience is important. While on occasion we have let a local student be a day student at MathPath, even then we have asked the student to stay around into the evening well beyond work hours, and we have not modified the costs based on an detailed division of our costs into a workday part and the rest. Indeed, such a division would be difficult to calculate. Furthermore, even if we took the effort to calculate it, it would obviously be for the sole purpose of letting families declare a tax deduction which we know to be of dubious legality. Needless to say, such a move could get us into a lot of trouble, and get you in trouble too. Even if we could successfully defend such an action, it would take time and money we don't have.

Question: Do we think the overnight camp tax rule is fair?

Answer: No we don't, but it doesn't matter what we think, because the overnight camp rule is written directly into the law. The only recourse is to change the law. So if you are upset about this situation, write to your Senators and Representative, pointing out that day camp is fully deductible and overnight camp is 0 deductible, even the day part, and could section Federal Code 21.(2)(A) be modified by removing the unusually explicit reference to overnight camps. Of course, tax laws are changed with difficulty, especially in the current national political climate. Short of a law change, the most that IRS has free hands to do with regulations to increase equitable treatment to camps is to reduce or eliminate the tax credit for day camps, which is surely not the result you want.

One piece of good news: It is possible that your employer has more generous benefits than normal and will pay in whole or in part for MathPath. It's worth checking. However, such payments cannot be with pretax dollars. Such payments must be in accordance with federal law and regulations.

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Created December 26, 2011