Publication 503 |
2000 Tax Year |
Tests To Claim the Credit
To be able to claim the credit for child and dependent care
expenses, you must file Form 1040 or Form 1040A, not Form 1040EZ, and
meet all the following tests.
- The care must be for one or more qualifying persons who are
identified on the form you use to claim the credit. (See
Qualifying Person Test.)
- You (and your spouse if you are married) must keep up a home
that you live in with the qualifying person or persons. (See
Keeping Up a Home Test, later.)
- You (and your spouse if you are married) must have earned
income during the year. (However, see Rule for student-spouse or
spouse not able to care for self under Earned Income Test,
later.)
- You must pay child and dependent care expenses so you (and
your spouse if you are married) can work or look for work. (See
Work-Related Expense Test, later.)
- You must make payments for child and dependent care to
someone you (or your spouse) cannot claim as a dependent. If you make
payments to your child, he or she cannot be your dependent and must be
age 19 or older by the end of the year. (See Payments to
Relatives under Work-Related Expense Test,
later.)
- Your filing status must be single, head of household,
qualifying widow(er) with dependent child, or married filing jointly.
You must file a joint return if you are married, unless an exception
applies to you. See Joint Return Test, later.
- You must identify the care provider on your tax return. (See
Provider Identification Test, later.)
- If you exclude dependent care assistance benefits provided
by your employer, you must exclude less than the dollar limit for
qualifying expenses (generally, less than $2,400 if one qualifying
person was cared for, or less than $4,800 if two or more qualifying
persons were cared for). (See Reduced Dollar Limit under
How To Figure the Credit, later.)
These tests are presented in Figure A and are also
explained in detail in this publication.
Figure A. Can you claim the credit
Qualifying Person Test
Your child and dependent care expenses must be for the care of one
or more qualifying persons.
A qualifying person is:
- Your dependent who was under age 13 when the care was
provided and for whom you can claim an exemption,
- Your spouse who was physically or mentally not able to care
for himself or herself, or
- Your dependent who was physically or mentally not able to
care for himself or herself and for whom you can claim an exemption
(or could claim an exemption except the person had $2,800 or more of
gross income).
If you are divorced or separated, see Child of Divorced or
Separated Parents, later, to determine which parent may treat
the child as a qualifying person.
For information on claiming an exemption, see Publication 501.
Physically or mentally not able to care for oneself.
Persons who cannot dress, clean, or feed themselves because of
physical or mental problems are considered not able to care for
themselves. Also, persons who must have constant attention to prevent
them from injuring themselves or others are considered not able to
care for themselves.
Person qualifying for part of year.
You determine a person's qualifying status each day. For example,
if the person for whom you pay child and dependent care expenses no
longer qualifies on September 16, count only those expenses through
September 15. Also see Dollar Limit under How To
Figure the Credit, later.
Taxpayer identification number.
You must include on your return the name and taxpayer
identification number (generally the social security number) of the
qualifying person(s). If the correct information is not shown, the
credit may be reduced or disallowed.
Individual taxpayer identification number (ITIN) for aliens.
If your qualifying person is a nonresident or resident alien who
does not have and cannot get a social security number (SSN), use that
person's ITIN. The ITIN is entered wherever an SSN is requested on a
tax return. If the alien who is required to furnish a taxpayer
identifying number does not have an ITIN, he or she must apply for an
ITIN on Form W-7, Application for IRS Individual Taxpayer
Identification Number.
An ITIN is for tax use only. It does not entitle the holder to
social security benefits or change the holder's employment or
immigration status under U.S. law.
Adoption taxpayer identification number (ATIN).
If your qualifying person is a child who was placed in your home
for adoption and for whom you do not have an SSN, you must get an ATIN
for the child. File Form W-7A, Application for Taxpayer
Identification Number for Pending U.S. Adoptions.
Child of Divorced or
Separated Parents
To be a qualifying person, your child usually must be your
dependent for whom you can claim an exemption. But an exception may
apply if you are divorced or separated. Under the exception, if you
are the custodial parent, you can treat your child as a qualifying
person even if you cannot claim the child's exemption. If you are the
noncustodial parent, you cannot treat your child as a qualifying
person even if you can claim the child's exemption.
This exception applies if all of the following are true.
- One or both parents had custody of the child for more than
half of the year.
- One or both parents provided more than half of the child's
support for the year.
- Either:
- The custodial parent signed Form 8332,
Release of Claim to Exemption for Child of Divorced or
Separated Parents, or a similar statement, agreeing not to claim
the child's exemption for the year, or
- The noncustodial parent provided at least $600 for the
child's support and can claim the child's exemption under a pre-1985
decree of divorce or separate maintenance, or written
agreement.
For purposes of 3(a), a similar statement includes a divorce
decree or separation agreement that went into effect after 1984 that
allows the noncustodial parent to claim the child's exemption without
any conditions, such as payment of support.
You can use Figure B to see whether this exception
applies to you. If it applies, only the custodial parent can treat the
child as a qualifying person. If the exception does not apply, follow
the regular rules for a qualifying person under Qualifying Person
Test, earlier.
Example.
You are divorced and have custody of your 8-year-old child. You
sign Form 8332 to allow your ex-spouse to claim the exemption. You pay
child care expenses so you can work. Your child is a qualifying person
and you, the custodial parent, can claim the credit for those
expenses, even though your ex-spouse claims an exemption for the
child.
Custodial parent.
You are the custodial parent if, during the year, you have custody
of your child longer than your child's other parent has custody.
Divorced or separated.
For purposes of determining whether your child is a qualifying
person, you are considered divorced or separated if either
of the following applies.
- You are divorced or separated under a decree of divorce or
separate maintenance or a written separation agreement.
- You lived apart from your spouse for all of the last 6
months of the year.
Figure B. Is a Child of Divorced or Separated Parents a Qualifying Person?
Keeping Up a Home Test
To claim the credit, you must keep up a home. You and one or more
qualifying persons must live in the home.
You are keeping up a home if you (and your spouse if you are
married) pay more than half the cost of running it for the year. If
you live in your home with a qualifying person for less than a full
year, see Cost determined monthly, later.
Home.
The home you keep must be the main home for both you and the
qualifying person. Your home can be the main home even if the
qualifying person does not live there all year because of his or her:
- Birth,
- Death, or
- Temporary absence due to:
- Sickness,
- School,
- Business,
- Vacation,
- Military service, or
- Custody agreement.
Costs of keeping up a home.
The costs of keeping up a home normally include property taxes,
mortgage interest, rent, utility charges, home repairs,
insurance on the home, and food eaten at home.
Costs not included.
The costs of keeping up a home do not include payments for
clothing, education, medical treatment, vacations, life insurance,
transportation, or mortgage principal.
They also do not include the purchase, permanent improvement, or
replacement of property. For example, you cannot include the cost of
replacing a water heater. However, you can include the cost of
repairing a water heater.
Public assistance benefits.
Payments you receive from a state that you use to keep up your home
are funds provided by the state, not by you. You must provide more
than half the cost of keeping up your home from your own funds
to claim the credit for child and dependent care expenses.
Families living together.
If you and your family share living space with another family, your
family and the other family are treated as separate households. (This
rule applies only for purposes of the credit for child and dependent
care expenses.) If you provide more than half the cost of running your
household, you are keeping up a home.
Cost determined monthly.
If a qualified person lived with you for less than a full year,
figure the cost of keeping up your home for that period. To do this,
divide your cost for the year by 12 and multiply the result by the
number of months the person lived with you. Count any partial month as
a full month.
Example.
Joe lives in his home all year, but his son, who is a qualifying
person, lives in it only from June 20 to December 31. The cost of
keeping up his home for the full year is $6,600. To meet the keeping
up a home test, Joe must pay more than half the cost of keeping up the
home from June 1 to December 31. He figures half the cost as follows.
Cost of Keeping Up Joe's Home That He Must
Pay |
1) |
Cost of keeping up the home for the full
year |
$6,600 |
2) |
Divided by the number of months in a year |
÷ 12 |
3) |
Monthly cost of keeping up the home |
$ 550 |
4) |
Multiplied by number of months the qualifying
person lived in the home |
x 7 |
5) |
Cost of keeping up the home while the
qualifying person lived there |
$3,850 |
6) |
Multiplied by one-half |
x .50 |
7) |
Half the cost of keeping up the home while the
qualifying person lived there |
$1,925 |
To meet the keeping up a home test, Joe must pay more than
$1,925 to keep up his home from June 1 to December 31.
Earned Income Test
To claim the credit, you (and your spouse if you are married) must
have earned income during the year.
Earned income.
Earned income includes wages, salaries, tips, other employee
compensation, and net earnings from self-employment. A net loss from
self-employment reduces earned income. Earned income also includes
strike benefits and any disability pay you report as wages.
Certain nontaxable earned income included.
It also includes nontaxable earned income such as parsonage
allowances, meals and lodging furnished for the convenience of the
employer, voluntary salary deferrals, military basic quarters and
subsistence allowances and in-kind quarters and subsistence, and
military pay earned in a combat zone.
Members of certain religious faiths opposed to social
security.
This section is for persons who are members of certain religious
faiths that are opposed to participation in Social Security Act
programs and have an IRS-approved form that exempts certain income
from social security and Medicare taxes. These forms are:
- Form 4361, Application for Exemption From
Self-Employment Tax for Use by Ministers, Members of Religious Orders
and Christian Science Practitioners, or
- Form 4029, Application for Exemption From Social
Security and Medicare Taxes and Waiver of Benefits, for use by
members of recognized religious groups.
Each form is discussed in this section in terms of what is or is
not earned income for purposes of the child and dependent care credit.
For information on the use of these forms, see Publication 517,
Social Security and Other Information for Members of the Clergy
and Religious Workers.
Form 4361.
Whether or not you have an approved Form 4361, amounts you received
for performing ministerial duties as an employee are earned
income. This includes wages, salaries, tips, and other employee
compensation. Other employee compensation includes earned income that
is not taxable such as housing allowances or the rental value of a
parsonage that you receive as part of your pay for services as an
employee.
However, amounts you received for ministerial duties, but not
as an employee, are not net earnings from self-employment for
the purposes of the child and dependent care credit. Examples include
fees for performing marriages and honoraria for delivering speeches.
Any income or loss from these activities is not taken into account in
figuring earned income.
Any amount you received for work that is not related to your
ministerial duties is earned income.
Form 4029.
Whether or not you have an approved Form 4029, all wages, salaries,
tips, and other employee compensation are earned income.
However, amounts you received as a self-employed
individual are not net earnings from self-employment for the
purposes of the child and dependent care credit, and are not taken
into account in figuring earned income.
What is not earned income?
Earned income does not include pensions or annuities, social
security payments, workers' compensation, interest, dividends, or
unemployment compensation. It also does not include scholarship or
fellowship grants, except amounts paid to you (and reported on Form
W-2) for teaching, research, or other services.
Rule for student-spouse or spouse not able to care for self.
Your spouse is treated as having earned income for any month that
he or she is:
- A full-time student, or
- Physically or mentally not able to care for himself or
herself.
Figure the earned income of the nonworking spouse, described under
(1) or (2) above, as shown under Earned Income Limit under
How To Figure the Credit, later.
This rule applies to only one spouse for any one month. If, in the
same month, both you and your spouse do not work and are either
full-time students or physically or mentally not able to care for
yourselves, only one of you can be treated as having earned income in
that month.
Full-time student.
You are a full-time student if you are enrolled at and attend a
school for the number of hours or classes that the school considers
full time. You must have been a student for some part of each of 5
calendar months during the year. (The months need not be consecutive.)
If you attend school only at night, you are not a full-time student.
However, as part of your full-time course of study, you may attend
some night classes.
School.
The term school includes elementary schools, junior and senior high
schools, colleges, universities, and technical, trade, and mechanical
schools. It does not include on-the-job training courses,
correspondence schools, and night schools.
Work-Related Expense Test
Child and dependent care expenses must be work related to qualify
for the credit. Expenses are considered work related only if both of
the following are true.
- They allow you (and your spouse if you are married) to work
or look for work.
- They are for a qualifying person's care.
Working or Looking for Work
To be work related, your expenses must allow you to work or look
for work. If you are married, generally both you and your spouse must
work or look for work. Your spouse is treated as working during any
month he or she is a full-time student or is physically or mentally
not able to care for himself or herself.
Your work can be for others or in your own business or partnership.
It can be either full time or part time.
Work also includes actively looking for work. However, if you do
not find a job and have no earned income for the year, you cannot take
this credit. See Earned Income Test, earlier.
Whether your expenses allow you to work or look for work depends on
the facts. For example, the cost of a baby sitter while you and your
spouse go out to eat is not normally a work-related expense.
Expenses are not considered work related merely because you had
them while you were working. They must enable you to be gainfully
employed.
Volunteer work.
You are not gainfully employed if you do unpaid volunteer work or
volunteer work for a nominal salary.
Work for part of year.
If you work or actively look for work during only part of the
period covered by the expenses, then you must figure your expenses for
each day. For example, if you work all year and pay care expenses of
$200 a month ($2,400 for the year), all the expenses are work related.
However, if you work or look for work for only 2 months and 15 days
during the year and pay expenses of $200 a month, your work-related
expenses are limited to $500 (2 1/2 months x $200).
Payments while you are out sick.
Do not count as work-related expenses amounts you pay for child and
dependent care while you are off work because of illness. These
amounts are not paid to allow you to work. This applies even if you
get sick pay and are still considered an employee.
Care of a Qualifying Person
To be work related, your expenses must be to provide care for a
qualifying person. You do not have to choose the least expensive way
of providing the care.
Expenses are for the care of a qualifying person only if their
main purpose is the person's well-being and protection.
Expenses for household services qualify if part of the
services is for the care of qualifying persons. See Household
Services, later.
Expenses not for care.
Expenses for care do not include amounts you pay for food,
clothing, education, and entertainment. However, you can include small
amounts paid for these items if they are incident to and cannot be
separated from the cost of caring for the qualifying person.
Otherwise, see the discussion of Expenses partly work related,
later.
Education.
Expenses to attend first grade or a higher grade are not expenses
for care. Do not use these expenses to figure your credit.
Example 1.
You take your 3-year-old child to a nursery school that provides
lunch and a few educational activities as part of its preschool
child-care service. You can count the total cost when you figure the
credit.
Example 2.
You place your 10-year-old child in a boarding school so you can
work full time. Only the part of the boarding school expense that is
for the care of your child is a work-related expense. You can count
that part of the expense in figuring your credit if it can be
separated from the cost of education. You cannot count any part of the
amount you pay the school for your child's education.
Care outside your home.
You can count the cost of care provided outside your home if the
care is for your dependent under age 13, or any other qualifying
person who regularly spends at least 8 hours each day in your home.
Dependent care center.
You can count care provided outside your home by a dependent care
center only if the center complies with all state and local
regulations that apply to these centers.
A dependent care center is a place that provides care for more than
six persons (other than persons who live there) and receives a fee,
payment, or grant for providing services for any of those persons,
even if the center is not run for profit.
Camp.
The cost of sending your child to an overnight camp is not
considered a work-related expense.
Transportation.
The cost of getting a qualifying person from your home to the care
location and back, or from the care location to school and back, is
not considered a work-related expense. This includes the
costs of bus, subway, taxi, or private car. Also, if you pay the
transportation cost for the care provider to come to your home, you
cannot count this cost as a work-related expense.
Household Services
Expenses you pay for household services meet the work-related
expense test if they are at least partly for the well-being and
protection of a qualifying person.
Definition.
Household services are ordinary and usual services done in and
around your home that are necessary to run your home. They include the
services of a housekeeper, maid, or cook. However, they do not include
the services of a chauffeur, bartender, or gardener.
Housekeeper.
In this publication, the term housekeeper refers to any household
employee whose services include the care of a qualifying person.
Expenses partly work related.
If part of an expense is work related (for either household
services or the care of a qualifying person) and part is for other
purposes, you have to divide the expense. To figure your credit, count
only the part that is work related. However, you do not have to divide
the expense if only a small part is for other purposes.
Example.
You pay a housekeeper to care for your 9-year-old and 15-year-old
children so you can work. The housekeeper spends most of the time
doing normal household work and spends 30 minutes a day driving you to
and from work. You do not have to divide the expenses. You can treat
the entire expense of the housekeeper as work related because the time
spent driving is minimal. Nor do you have to divide the expenses
between the two children, even though the expenses are partly for the
15-year-old child who is not a qualifying person, because the expense
is also partly for the care of your 9-year-old child, who is a
qualifying person. However, the dollar limit (discussed later) is
based on one qualifying person, not two.
Meals and lodging provided for housekeeper.
If you have expenses for meals that your housekeeper eats in your
home because of his or her employment, count these as work-related
expenses. If you have extra expenses for providing lodging in your
home to the housekeeper, count these as work-related expenses also.
Example.
To provide lodging to the housekeeper, you move to an apartment
with an extra bedroom. You can count the extra rent and utility
expenses for the housekeeper's bedroom as work related. However, if
your housekeeper moves into an existing bedroom in your home, you can
only count the extra utility expenses as work related.
Taxes paid on wages.
The taxes you pay on wages for qualifying child and dependent care
services are work-related expenses. For more information on a
household employer's tax responsibilities, see Employment Taxes
for Household Employers, later.
Payments to Relatives
You can count work-related payments you make to relatives who are
not your dependents, even if they live in your home. However, do not
count any amounts you pay to:
- A dependent for whom you (or your spouse if you are married)
can claim an exemption, or
- Your child who is under age 19 at the end of the year, even
if he or she is not your dependent.
Joint Return Test
Generally, married couples must file a joint return to take the
credit. However, if you are legally separated or living apart from
your spouse, you may be able to file a separate return and still take
the credit.
Legally separated.
You are not considered married if you are legally separated from
your spouse under a decree of divorce or separate maintenance. You are
eligible to take the credit on a separate return.
Married and living apart.
You are not considered married and are eligible to take the credit
if all the following apply.
- You file a separate return.
- Your home is the home of a qualifying person for more than
half the year.
- You pay more than half the cost of keeping up your home for
the year.
- Your spouse does not live in your home for the last 6 months
of the year.
Death of spouse.
If your spouse died during the year and you do not remarry before
the end of the year, you generally must file a joint return to take
the credit. If you do remarry before the end of the year, the credit
can be claimed on your deceased spouse's separate return.
Provider Identification Test
You must identify all persons or organizations that provide care
for your child or dependent. Use Part I of Form 2441 or Schedule 2
(Form 1040A) to show the information.
Information needed.
To identify the care provider, you must give the provider's:
- Name,
- Address, and
- Taxpayer identification number.
If the care provider is an individual, the taxpayer identification
number is his or her social security number or individual taxpayer
identification number. If the care provider is an organization, then
it is the employer identification number (EIN).
You do not have to show the taxpayer identification number if the
care provider is one of certain tax-exempt organizations (such as a
church or school). In this case, write "Tax-Exempt" in the space
where the tax form calls for the number.
If you cannot provide all of the information or the information is
incorrect, you must be able to show that you used due diligence
(discussed later) in trying to furnish the necessary information.
Getting the information.
You can use Form W-10, Dependent Care
Provider's Identification and Certification, to request the
required information from the care provider. If you do not use Form
W-10, you can get the information from:
- A copy of the provider's social security card,
- A copy of the provider's driver's license (in a state where
the license includes the social security number),
- A copy of the provider's completed Form W-4,
Employee's Withholding Allowance Certificate, if he or she
is your household employee,
- A copy of the statement furnished by your employer if the
provider is your employer's dependent care plan, or
- A letter or invoice from the provider if it shows the
necessary information.
You should keep this information with your tax records. Do not send
Form W-10 (or other document containing this information) to the
Internal Revenue Service.
Due diligence.
If the care provider information you give is incorrect or
incomplete, your credit may not be allowed. However, if you can show
that you used due diligence in trying to supply the information, you
can still claim the credit.
You can show due diligence by getting and keeping the provider's
completed Form W-10 or one of the other sources of information
listed earlier. Care providers can be penalized if they do not provide
this information to you or if they provide incorrect information.
Provider refusal.
If the provider refuses to give you the identifying information,
you should report whatever information you have (such as the name and
address) on the form you use to claim the credit. Enter "See Page 2"
in the columns calling for the information you do not have. On the
bottom of page 2, explain that you requested the information from the
care provider, but the provider did not give you the information. This
statement will show that you used due diligence in trying to furnish
the necessary information.
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