| Publication 503 |
2000 Tax Year |
How To Figure the Credit
Your credit is a percentage of your work-related expenses. Your
expenses are subject to the earned income limit and the dollar limit.
The percentage is based on your adjusted gross income.
Figuring Total
Work-Related Expenses
To figure the credit for 2000 work-related expenses, count only
those you paid by December 31, 2000.
Expenses prepaid in an earlier year.
If you pay for services before they are provided, you can count the
prepaid expenses only in the year the care is received. Claim the
expenses for the later year as if they were actually paid in that
later year.
Expenses not paid until the following year.
Do not count 1999 expenses that you paid in 2000 as
work-related expenses for 2000. You may be able to claim an additional
credit for them on your 2000 return, but you must figure it
separately. See Payments for previous year's expenses under
Amount of Credit, later.
If you had expenses in 2000 that you did not pay until 2001, you
cannot count them when figuring your 2000 credit. You may be able to
claim a credit for them on your 2001 return.
Expenses reimbursed.
If a state social services agency pays you a nontaxable amount to
reimburse you for some of your child and dependent care expenses, you
cannot count the expenses that are reimbursed as work-related
expenses.
Example.
You paid work-related expenses of $3,000. You are reimbursed $2,000
by a state social services agency. You can use only $1,000 to figure
your credit.
Medical expenses.
Some expenses for the care of qualifying persons who are not able
to care for themselves may qualify as work-related expenses and also
as medical expenses. You can use them either way, but you cannot use
the same expenses to claim both a credit and a medical expense
deduction.
If you use these expenses to figure the credit and they are more
than the earned income limit or the dollar limit, discussed later, you
can add the excess to your medical expenses. However, if you use your
total expenses to figure your medical expense deduction, you cannot
use any part of them to figure your credit. For information on medical
expenses, see Publication 502,
Medical and Dental Expenses.
Amounts excluded from your income under your employer's dependent
care benefits plan cannot be used to claim a medical
expense deduction.
Employer-Provided Dependent
Care Benefits
Dependent care benefits include:
- Amounts your employer pays directly to either you or your
care provider for the care of your qualifying person while you work,
and
- The fair market value of care in a day-care facility
provided or sponsored by your employer.
Your salary may have been reduced to pay for these benefits. If
you received benefits, they should be shown on your Form W-2,
Wage and Tax Statement. See Statement for
employee, later.
Exclusion.
If your employer provides dependent care benefits under a qualified
plan, you may be able to exclude these benefits from your income. Your
employer can tell you whether your benefit plan qualifies. If it does,
you must complete Part III of either Form 2441 or Schedule 2 (Form
1040A) to claim the exclusion even if you cannot take the credit. You
cannot use Form 1040EZ.
The amount you can exclude is limited to the smallest of:
- The total amount of dependent care benefits you received
during the year,
- The total amount of qualified expenses you incurred during
the year,
- Your earned income,
- Your spouse's earned income, or
- $5,000 ($2,500 if married filing separately).
Statement for employee.
Your employer must give you a Form W-2 (or similar
statement),
showing in box 10 the total amount
of dependent care benefits provided to you during the year under a
qualified plan. Your employer will also include any dependent care
benefits over $5,000 in your wages shown in box 1 of your Form
W-2.
Forfeitures.
Forfeitures are amounts credited to your dependent care benefit
account (flexible spending account) and included in the amount shown
in box 10 of your Form W-2, but not received because you did not
incur the expense. When figuring your exclusion, subtract any
forfeitures from the total dependent care benefits reported by your
employer. To do this, enter the forfeited amount on line 11 of Form
2441 or Schedule 2 (Form 1040A).
Forfeitures do not include amounts that you expect to receive in
the future.
Effect of exclusion.
If you exclude dependent care benefits from your income, the amount
of the excluded benefits:
- Is not included in your work-related expenses, and
- Reduces the dollar limit, discussed later.
Earned Income Limit
The amount of work-related expenses you use to figure your credit
cannot be more than:
- Your earned income for the year, if you are single
at the end of the year, or
- The smaller of your or your spouse's earned income for the
year, if you are married at the end of the year.
Earned income is defined under Earned Income Test,
earlier.
For purposes of item (2), use your spouse's earned income for the
entire year, even if you were married for only part of the year.
Example.
You remarried on December 3. Your earned income for the year was
$18,000. Your new spouse's earned income for the year was $2,000. You
paid work-related expenses of $3,000 for the care of your 5-year-old
child and qualified to claim the credit. The amount of expenses you
use to figure your credit cannot be more than $2,000 (the smaller of
your earned income or that of your spouse).
Separated spouse.
If you are legally separated or married and living apart from your
spouse (as described under Joint Return Test, earlier), you
are not considered married for purposes of the earned income limit.
Use only your income in figuring the earned income limit.
Surviving spouse.
If your spouse died during the year and you file a joint return as
a surviving spouse, you are not considered married for purposes of the
earned income limit. Use only your income in figuring the earned
income limit.
Community property laws.
You should disregard community property laws when you figure earned
income for this credit.
Self-employment earnings.
If you are self-employed, include your net earnings in earned
income. For purposes of the child and dependent care credit, net
earnings from self-employment generally means the amount from line 3
of Schedule SE (either Section A or Section B) minus any
deduction for self-employment tax on line 27 of Form 1040. Include
your self-employment earnings in earned income, even if they are less
than $400 and you did not file Schedule SE.
Statutory employee.
If you filed Schedule C or C-EZ to report income as a
statutory employee, also include as earned income the amount from line
1 of that Schedule C or C-EZ.
Net loss.
You must reduce your earned income by any net loss from
self-employment.
Optional method if earnings are low or a net loss.
If your net earnings from self-employment are low or you have a net
loss, you may be able to figure your net earnings by using an optional
method instead of the regular method. Get Publication 533,
Self-Employment Tax, for details. If you use an optional
method to figure net earnings for self-employment tax purposes,
include those net earnings in your earned income for this credit. In
this case, subtract any deduction you claimed on Form 1040, line 27,
from the total of the amounts on Schedule SE, Section B, lines 3 and
4b, to figure your net earnings.
Student-spouse or spouse not able to care for self.
Your spouse who is either a full-time student or not able to care
for himself or herself is treated as having earned income. His or her
earned income for each month is considered to be at least $200 if
there is one qualifying person in your home, or at least $400 if there
are two or more.
Spouse works.
If your spouse works during that month, use the higher of $200 (or
$400) or his or her actual earned income for that month.
Spouse qualifies for part of month.
If your spouse is a full-time student or not able to care for
himself or herself for only part of a month, the full $200 (or $400)
still applies for that month.
Both spouses qualify.
If, in the same month, both you and your spouse are either
full-time students or not able to care for yourselves, only one spouse
can be considered to have this earned income of $200 (or $400) for
that month.
Example.
Jim works and keeps up a home for himself and his wife Sharon.
Because of an accident, Sharon is not able to care for herself for 11
months during the tax year.
During the 11 months, Jim pays $2,750 of work-related expenses for
Sharon's care. These expenses also qualify as medical expenses. Their
adjusted gross income is $29,000 and the entire amount is Jim's earned
income.
Jim and Sharon's earned income limit is the smallest of the
following amounts.
| | Jim and Sharon's Earned Income
Limit |
| 1) |
Work-related expenses Jim paid |
$ 2,750 |
| 2) |
Jim's earned income |
$29,000 |
| 3) |
Income considered earned by Sharon
(11 x $200) |
$ 2,200 |
Jim and Sharon can use $2,200 to figure the credit and treat
the balance of $550 ($2,750 - $2,200) as a medical expense.
However, if they use the $2,750 first as a medical expense, they
cannot use any part of that amount to figure the credit.
Dollar Limit
There is a dollar limit on the amount of your work-related expenses
you can use to figure the credit. This limit is $2,400 for one
qualifying person, or $4,800 for two or more qualifying persons.
If you paid work-related expenses for the care of two or more
qualifying persons, the $4,800 limit does not need to be divided
equally among them. For example, if your work-related expenses for the
care of one qualifying person are $2,000 and your work-related
expenses for another qualifying person are $2,800, you can use the
total, $4,800, when figuring the credit.
Yearly limit.
The dollar limit is a yearly limit. The amount of the dollar limit
remains the same no matter how long, during the year, you have a
qualifying person in your household. Use the $2,400 limit if you paid
work-related expenses for the care of one qualifying person at any
time during the year. Use $4,800 if you paid work-related expenses for
the care of more than one qualifying person at any time during the
year.
Example.
In July of this year, to permit your spouse to begin a new job, you
enrolled your 3-year-old daughter in a nursery school that provides
preschool child care. You paid $300 per month for the child care. You
can use the full $1,800 you paid ($300 x 6 months) as qualified
expenses since it is not more than the $2,400 yearly limit.
Reduced Dollar Limit
If you received dependent care benefits from your
employer
that you exclude from
your income, you must subtract that amount from the dollar limit that
applies to you. Your reduced dollar limit is figured on lines 20
through 24 of Form 2441 or Schedule 2 (Form 1040A). See
Employer-Provided Dependent Care Benefits, earlier, for
information on excluding these benefits.
Example.
George is a widower with one child and earns $24,000 a year. He
pays work-related expenses of $1,900 for the care of his 4-year-old
child and qualifies to claim the credit for child and dependent care
expenses. His employer pays an additional $1,000 under a qualified
dependent care benefit plan. This $1,000 is excluded from George's
income.
Although the dollar limit for his work-related expenses is $2,400
(one qualifying person), George figures his credit on only $1,400 of
the $1,900 work-related expenses he paid. This is because his dollar
limit is reduced as shown next.
| George's Reduced Dollar Limit |
| 1) |
Maximum allowable expenses for one
qualifying person |
$2,400 |
| 2) |
Minus: Dependent care benefits
George
excludes from income |
-1,000 |
| 3) |
Reduced dollar limit on expenses George
can use for the credit |
$1,400 |
Amount of Credit
To determine the amount of your credit, multiply your work-related
expenses (after applying the earned income and dollar limits) by a
percentage. This percentage depends on your adjusted gross income
shown on line 34 of Form 1040 or line 19 of Form 1040A. The following
table shows the percentage to use based on adjusted gross income.
| IF your adjusted gross income is: |
THEN the |
| Over |
But not over |
percentage is: |
| $ 0 |
$10,000 |
30% |
| 10,000 |
12,000 |
29% |
| 12,000 |
14,000 |
28% |
| 14,000 |
16,000 |
27% |
| 16,000 |
18,000 |
26% |
| 18,000 |
20,000 |
25% |
| 20,000 |
22,000 |
24% |
| 22,000 |
24,000 |
23% |
| 24,000 |
26,000 |
22% |
| 26,000 |
28,000 |
21% |
| 28,000 |
No limit |
20% |
Payments for previous year's expenses.
If you had work-related expenses in 1999 that you paid in 2000, you
may be able to increase the credit on your 2000 return. Attach a
statement to your form showing how you figured the additional amount
from 1999. Then above line 9 on Form 2441 or Schedule 2 (Form 1040A),
write "PYE" and the amount of the credit. To the right of that
amount, also write the name and taxpayer identification number of the
person for whom you paid the prior year's expenses. Then add this
credit to the amount on line 9, and replace the amount on line 9 with
the total.
Use the following worksheet to figure the credit you may claim for
1999 expenses paid in 2000.
| Worksheet for 1999 Expenses Paid in
2000 |
| 1) |
Enter your 1999 qualified expenses paid in
1999 |
|
| 2) |
Enter your 1999 qualified expenses paid in
2000 |
|
| 3) |
Add the amounts on lines 1 and 2 |
|
| 4) |
Enter $2,400 if care was for one qualifying
person ($4,800 if for two or more) |
|
| 5) |
Enter any dependent care benefits received for
1999 and excluded from your income (from line 18 of 1999 Form 2441 or
Schedule 2 (Form 1040A)) |
|
| 6) |
Subtract amount on line 5 from amount on line 4
and enter the result |
|
| 7) |
Compare your earned income for 1999 and your
spouse's earned income for 1999 and enter the
smaller amount |
|
| 8) |
Compare the amounts on lines 3, 6, and 7 and
enter
the smallest amount |
|
| 9) |
Enter the amount on which you figured the
credit for 1999 (from line 6 of 1999 Form 2441 or Schedule 2 (Form
1040A)) |
|
| 10) |
Subtract amount on line 9 from amount on line 8
and enter the result. If zero or less, stop here. You cannot increase
your credit by any previous year's expenses |
|
| 11) |
Enter your 1999 adjusted gross income (from
line 33 of your 1999 Form 1040 or line 18 of your 1999 Form 1040A) |
|
| 12) |
Find your 1999 adjusted gross income in the
table of percentages (shown earlier) and enter the corresponding
decimal amount here |
|
| 13) |
Multiply line 10 by line 12. Add this amount to
your 2000 credit and enter the total on line 9 of your 2000 Form 2441
or Schedule 2 (Form 1040A). Above line 9, write "PYE," the amount
of this credit, and the name and taxpayer identification number of the
person for whom you paid the prior year's expenses |
|
Example.
In 1999, Sam and Kate had child-care expenses of $2,600 for their
12-year-old child. Of the $2,600, they paid $2,000 in 1999 and $600 in
2000. Their adjusted gross income for 1999 was $30,000. Sam's earned
income of $14,000 was less than Kate's earned income. A credit for
their 1999 expenses paid in 2000 is not allowed in 1999. It is allowed
for the 2000 tax year, but they must use their adjusted gross income
for 1999 to compute the amount. The worksheet they use to figure this
credit is shown next.
| Sam
& Kate's Worksheet for 1999 Expenses Paid in 2000 |
| 1) |
Enter your 1999 qualified
expenses paid in 1999 |
$ 2,000 |
| 2) |
Enter your 1999 qualified
expenses paid in 2000 |
600 |
| 3) |
Add the amounts on lines
1 and 2 |
$ 2,600 |
| 4) |
Enter $2,400 if care was
for one qualifying person ($4,800 if for two or more) |
$ 2,400 |
| 5) |
Enter any dependent care
benefits received for 1999 and excluded from your income (from line
18 of 1999 Form 2441 or
Schedule 2 (Form 1040A)) |
0 |
| 6) |
Subtract amount on line
5 from amount on line 4 and enter the result |
$ 2,400 |
| 7) |
Compare your earned income
for 1999 and your spouse's earned income for 1999 and enter the
smaller amount |
$14,000 |
| 8) |
Compare the amounts on
lines 3, 6, and 7 and enter the smallest amount |
$ 2,400 |
| 9) |
Enter the amount on which
you figured the credit for 1999 (from line 6 of 1999 Form
2441 or Schedule 2 (Form 1040A)) |
2,000 |
| 10) |
Subtract amount on line
9 from amount on line 8 and enter the result. If zero or less, stop
here. You cannot increase your credit by any previous year's expenses |
400 |
| 11) |
Enter your 1999 adjusted
gross income (from line 33 of your 1999 Form 1040 or line 18 of
your 1999 Form 1040A) |
$30,000 |
| 12) |
Find your 1999 adjusted
gross income in the table of percentages (shown earlier) and enter
the corresponding decimal amount here |
.20 |
| 13) |
Multiply line 10 by line
12. Add this amount to your 2000 credit and enter the total on line
9 of your 2000 Form 2441 or Schedule
2 (Form 1040A). Above line 9, write "PYE," the amount of this
credit, and the name and taxpayer identification number of the person
for whom you paid the prior year's expenses |
$ 80 |
Sam and Kate add the $80 from line 13 of this worksheet to
their 2000 credit and enter the total on line 9 of their Schedule 2
(Form 1040A). They enter "PYE $80" and their child's name and SSN
above line 9.
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