Can I claim the Child and Dependent Care Credit?

If you paid someone to care for your dependent under age 13 or your disabled dependent or spouse so that you could work or look for work, you may be able to claim the credit for child and dependent care expenses.

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My spouse and I both work and are eligible for the Child and Dependent Care Credit. May I include my 5 year old son's parochial school kindergarten tuition cost as a qualified expense in Form 2441, Child Care Expenses?

The expenses for kindergarten do not qualify for the dependent care credit if the kindergarten is primarily educational in nature. Expenses for school in the first grade or higher do not qualify for the credit. However, you can count the part of the expenses of sending your child to school that is for your child's care if it can be separated from the expenses of education. For example, you may count the cost of an after school care program even though the school tuition does not qualify.

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I paid into a dependent care benefits plan and the amount is shown in Box 10 of my Form W-2. However, the cost paid to the child care provider was more. Can the additional expense not paid into the dependent care benefits plan and not shown in Box 10 of the W-2 be claimed on Form 2441?

That depends on the amount you elected to have contributed to the flexible spending arrangement. The exclusion from income for employer-provided benefits can be as high as $5,000, while the credit for dependent care expenses is based on annual dollar limits of $3,000 for one person and $6,000 for two or more persons. You must reduce those dollar limits by the amount of excludible dependent care benefits. If you had expenses that you paid yourself and the employer provided benefits were less than the applicable dollar limit, you can also claim the credit. Complete Part III of either Form 2441, Child and Dependent Care Expenses, or Form 1040A, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers, to determine the excluded benefits and whether you can claim the credit.

Change. The applicable percentage and allowable employment-related expenses increase beginning in 2003. The maximum applicable percentage is 35 percent and the allowable employment-related expenses are $3,000 for one qualifying child and $6,000 for two or more qualifying children (Code Sec. 21, as amended by the Economic Growth and Tax Relief Reconciliation Act of 2001). Thus, the maximum credit is $1,050 for one qualifying child and $2,100 for two or more qualifying children.

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If my employer did not put the amount I paid into a flexible spending account for dependent care in box 10 on my Form W-2, can I claim the Child and Dependent Care Tax Credit?

If the omission was simply a clerical oversight, you may not claim the child care credit. If the flexible spending account was an eligible plan under Internal Revenue Code Section 125, the amount of the salary reduction that was contributed to your account should appear in box 10 of your Form W-2. Request a corrected Form W-2 from your employer.

You may claim the child care credit if the contribution to your flexible spending account was less than your annual dollar limitation for eligible expenses ($3,000 for one person, or $6,000 for two or more persons)

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I was under the impression that a Dependent Care Benefit Plan would benefit me, not penalize me with an increase in taxes. How can my employer say they provided a benefit in the total amount of $3,000 in W-2, Block 10 when I had $3,000 in wages set aside for dependent care benefits?

The actual mechanism for this type of plan is an agreement to voluntarily reduce your salary in return for an employer-provided fringe benefit. These plans must be set up this way because you have a choice of whether to receive the cash wages or the benefits, which would make the benefit taxable to you. Therefore, the benefits are actually employer provided or funded. You are receiving a tax benefit because you are not paying taxes on the money that is set aside.

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I am self-employed, but did not have a net profit last year. Is it correct that we do not qualify for the Child Care Credit on our joint return even though my wife received dependent care benefits on her W-2 box 10?

Generally, yes. When you complete Part III of Form 2441, Child and Dependent Care Expenses, which you must do to claim excluded benefits, line 17 asks you to enter the smallest of:

your dependent care benefits,
your qualified expenses,
your earned income, or
your spouse's earned income.

If you had a loss from self-employment and no other earned income, your earned income would be $0, unless you can use one of the optional methods on Form 1040, Schedule SE, Self-Employment Tax. That would mean that the amount in box 10 of your wife's Form W-2 would have to be included in income.

The income considered to be earned by a spouse who is a full-time student or who is incapable of self-care is $250 per month if there's one qualifying individual in the household, and $500 a month if there are two or more qualifying individuals. However, this income is deemed to be earned only by one spouse for any given month. (Code Sec. 21 (d) (2)).

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Is a flexible spending account for dependent care a dependent care benefit?

Yes. If the flexible spending account is providing you with a dependent care benefit, then it should be reported in box 10 of your Form W-2. These accounts are funded through a salary reduction, so the contribution to the account is considered an employer contribution. When you receive a dependent care benefit from your employer, you must complete Part III of Form 2441, Child and Dependent Care Expenses, (or Form 1040A, Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers) to see if the benefits are fully excluded from income. You may be able to also claim a credit for child and dependent care expenses if the excluded benefits are less than the dollar limit on qualified expenses for the credit.

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My divorce decree states that my ex-spouse can claim our daughter as an exemption on alternate years. I am the custodial parent and pay child care expenses. Can I claim child care expenses on the years he takes the exemption?

The Child and Dependent Care Credit can only be claimed by the custodial parent. This is true even if you cannot claim the child's exemption because the divorce decree allows the other parent to claim the exemption, or you have released the exemption on Form 8332.

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If I send my child who was under the age of 13 to a day camp instead of a child care facility for the summer, are these deductible expenses?

The cost of day camp, including a camp that specializes in a particular activity such as soccer or computers, may qualify as child care expense, if your main purpose in sending your child is to assure the child's well-being and protection.

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I am thinking of having a family member baby-sit for my child full time in their own home while I work. Are either of us responsible for taxes on the money I would pay? Can I claim this money as a child care expense even though my family member is not a registered day care provider?

You may have qualified child care expenses if the family member baby-sitting is not your dependent or your child under age 19 and you meet all the tests to claim the Child and Dependent Care Credit. Your family member will be responsible for paying taxes on the money earned and will be considered to be self-employed.

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