| Publication 503 |
2001 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 2001 work-related expenses, count only those you paid by December 31, 2001.
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 2000 expenses that you paid in 2001 as work-related expenses for 2001. You may be able to claim an additional credit for
them on your 2001 return, but you must figure it separately. See Payments for previous year's expenses under Amount of Credit,
later.
If you had expenses in 2001 that you did not pay until 2002, you cannot count them when figuring your 2001 credit. You may be able to claim a
credit for them on your 2002 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 × $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 × 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 20 of Form 1040A. The following table shows the
percentage to use based on adjusted gross income.
| IF your adjusted gross income
is: |
THEN
the
percentage is: |
| Over |
But not over |
| $ 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 2000 that you paid in 2001, you may be able to increase the credit on your 2001 return. Attach a statement to
your form showing how you figured the additional amount from 2000. Then above line 9 on Form 2441 or Schedule 2 (Form 1040A), print "CPYE" 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 2000 expenses paid in 2001.
| Worksheet for 2000 Expenses Paid in 2001 |
| 1) |
Enter your 2000 qualified expenses paid in 2000 |
|
| 2) |
Enter your 2000 qualified expenses paid in 2001 |
|
| 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 2000 and excluded from your income (from line 18 of 2000
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 2000 and your spouse's earned income for 2000 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 2000 (from line 6 of 2000 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 2000 adjusted gross income (from line 34 of your 2000 Form 1040 or line 20 of your 2000 Form
1040A) |
|
| 12) |
Find your 2000 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 2001 credit and enter the total on line 9 of your 2001
Form 2441 or Schedule 2 (Form 1040A). Above line 9, print "CPYE," 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 2000, 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 2000 and $600 in 2001.
Their adjusted gross income for 2000 was $30,000. Sam's earned income of $14,000 was less than Kate's earned income. A credit for their 2000 expenses
paid in 2001 is not allowed in 2000. It is allowed for the 2001 tax year, but they must use their adjusted gross income for 2000 to compute the
amount. The worksheet they use to figure this credit is shown next.
| |
Sam & Kate's Worksheet for 2000 Expenses Paid in 2001 |
| 1) |
Enter your 2000 qualified expenses paid in 2000 |
$ 2,000 |
| 2) |
Enter your 2000 qualified expenses paid in 2001 |
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 2000 and excluded from your income (from line 18 of 2000
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 2000 and your spouse's earned income for 2000 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 2000 (from line 6 of 2000 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 2000 adjusted gross income (from line 34 of your 2000 Form 1040 or line 20 of your 2000 Form
1040A) |
$30,000 |
| 12) |
Find your 2000 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 2001 credit and enter the total on line 9 of your 2001
Form 2441 or Schedule 2 (Form 1040A). Above line 9, print "CPYE," 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 2001 credit and enter the total on line 9 of their Schedule 2
(Form 1040A). They enter "CPYE $80" and their child's name and SSN above line 9.
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