New Child Care Provisions

Working people who take tax credits or exclusions for dependent care and child and dependent care providers have new reporting requirements for income tax returns due next year.

A provision of the Family Support Act of 1988, according to the Internal revenue Service, now requires that:

• care providers, except those that are tax-exempt, give their taxpayer identification number (TIN) to any client who plans to take a credit or an exclusion for the cost of the care; and
• taxpayers who take this tax credit or exclusion write in the correct name, address and TIN of the care provider on their federal income tax returns.

Generally, if you pay someone else to care for your child who is under 13 or for a disabled dependent, you may be able to take a tax credit of up to 30 percent of the cost of the care. Expenses for which the credit may be claimed are limited to $2,400 for one dependent and $4,800 for two or more. Employees whose employers provide the care may, under certain circumstances, exclude up to $5,000 of the value of this care from their gross income. Beginning with 1989 tax returns filed in 1990, anyone claiming the credit or the exclusion must include the correct name, address and TIN of the care provider.

For individuals, their social security numbers are their correct TINs. For others, generally the employer identification number is the correct TIN. Care providers who willfully refuse to comply with this new requirement may be subject to a $50 penalty for each violation.

If you want to claim this tax credit or take the exclusion for employer-provided assistance, get new IRS Form W-10, Dependent Care Provider's Identification and Certification, and give it to each of your care providers to fill out and return to you. For example, if during the year you change from one provider to another, you would have to give a Form W-10 to both. This form, like the W-4 employees file with employers, does not go to the IRS. Instead keep it with your records. You can pick up Forms W-10 at an IRS office or order by calling 1-800-424- 3676. You can write for forms as follows:

If you are located in:                  Send to:

Alaska, Arizona,California         Forms Distribution Center
Colorado, Hawaii, Idaho,           Rancho Cordova, CA
Montana, Nevada, New Mexico,       95743-0001
Oregon, Utah, Washington,
Wyoming

Alabama, Arkansas, Illinois,       Forms Distribution Center
Indiana, Iowa, Kansas, Kentucky    P. O. Box 9903
Louisiana,Michigan, Minnesota,     Bloomington, IL 61799
Mississippi, Missouri,Nebraska,
North Dakota, Ohio, Oklahoma,
South Dakota, Tennessee,
Texas Wisconsin

Connecticut, Delaware, District    Forms Distribution Center
of Columbia, Florida, Georgia,     P. O. Box 25866
Maine, Maryland, Massachusetts,    Richmond, VA 23289
New Hampshire, New Jersey, New
York, North Carolina, Pennsylvania,
Rhode Island, South Carolina,
Vermont, Virginia, West Virginia

In cases where a provider refuses to give all the necessary information, taxpayers should provide as much information as they can and keep records. A copy of a recently printed letterhead or bill head will serve to verify the provider's name and address. If the care provider is an employee, a copy of a properly prepared W-4, Employee's Withholding Allowance Certificate, will have all the necessary information.

Notice 89-71, which gives official guidance on these reporting instructions, is attached and will be published in Internal revenue Bulletin 1989-26, dated June 26, 1989.

Part III -- Administrative, Procedural, and Miscellaneous Furnishing Identification of Dependent Care Providers

NOTICE 89-71

This notice provides guidance on the new reporting requirements for taxpayers claiming the dependent care credit under section 21 of the Internal revenue Code or taking the dependent care exclusion under section 129 of the Code.

Section 703(c) of the Family Support Act of 1988 (the Act), Pub. L. No. 100-485, amended sections 21 and 129 of the Code to require taxpayers claiming the credit for dependent care expenses under section 21, or taking the exclusion pursuant to a dependent care assistance program under section 129, to furnish the Internal Revenue Service (Service) with the name, address, and taxpayer identification number (TIN) of the care provider. (For individuals, their TIN is their social security number. For other entities, generally, their TIN is their employer identification number.) In the case of a care provider that is an organization described in section 501(c)(3) and exempt from tax under section 501(a), the taxpayer claiming such a credit or taking such an exclusion is required to furnish only the name and address of the care provider.

Act section 703(c) also amended section 6109(a)(2) of the Code to require care providers to furnish their TINs to taxpayers who need the TINs in order to claim the credit under section 21 of the Code or taking the exclusion under section 129 must furnish the required information on the federal income tax return on which the credit is claimed or to which the exclusion relates. Form 2441, Credit for Child and Dependent Care Expenses (filed with Form 1040), and Part I of Schedule 1, Credit for Child and Dependent Care Expenses, (filed with Form 1040A), will be retitled and revised to provide space and instructions for taxpayers claiming the credit or taking the exclusion to furnish the required information. In the case of a care provider that is an organization described in section 501(c)(3) and exempt from tax under section 501(a), taxpayers must write "tax-exempt" in the space in which the TIN of the care provider generally would be reported.

These new requirements are effective for taxable years beginning after December 31, 1988. Thus, taxpayers claiming the credit or taking the exclusion generally must furnish the required information on their federal income tax returns for 1989 and subsequent years (that is, beginning with returns due by April 16, 1990).

Taxpayers who do not furnish correct or complete information will not be allowed the dependent care credit or exclusion unless, upon the Service's request, they show that they exercised due diligence in attempting to furnish the required information. Any one of the following documents may be used to show that a taxpayer exercised due diligence in attempting to furnish the required information, unless the taxpayer knows or has reason to know that the information on the document is incorrect:

1. A completed Form W-10, Dependent Care Provider's Identification and Certification;
2. A copy of the care provider's social security card or driver's license (in a state where the license includes the social security number);
3. A recently printed letterhead or printed invoice of the care provider that contains the required information;
4. If the care provider is the taxpayer's household employee and has given the taxpayer a completed Form W- 4, Employee's Withholding Allowance Certificate, a copy of that W-4; and
5. If the employer is the care provider in the case of a section 129 program, a copy of the statement furnished to the employee under section 129(d)(6) of the Code that contains the required information.

Taxpayers should request the required information from the care provider. In cases where the care provider does not comply with such a request, taxpayers should furnish whatever information they have (that is, a name, an address, and, if known and required, a TIN of the care provider) on the Form 2441 or Schedule 1 (whichever is applicable). Taxpayers should then includes a statement on the Form 2441 or Schedule 1 (whichever is applicable) that they requested the required information from the care provider, and that the care provider did not comply with the request. This statement will show that the taxpayer exercised due diligence in attempting to furnish the required information, unless the taxpayer knows or has reason to know that the statement is incorrect.

This document serves as an "administrative pronouncement" as that term is described in section 1.6661-3(b)(2) of the Income Tax Regulations, and may be relied upon to the same extent as a revenue ruling or revenue procedure.

DRAFTING INFORMATION

The principal author of this notice is Joel S. Rutstein of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Mr. Rutstein on (202) 566-4430 (not a toll-free call).

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