| Publication 17 |
2008 Tax Year |
32.
Child and Dependent Care Credit
Taxpayer identification number needed for each qualifying person. You must include on line 2 of Form 2441 or Schedule 2 (Form 1040A) the name and taxpayer identification number (generally
the social security number) of each qualifying person. See
Taxpayer identification number
under
Qualifying Person Test
, later.
You may have to pay employment taxes. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to
pay employment taxes. Usually, you are not a household employer if the person who cares for your dependent or spouse does
so at his or her home or place of business. See
Employment Taxes for Household Employers
, later.
This chapter discusses the credit for child and dependent care expenses and covers the following topics.
-
Tests you must meet to claim the credit.
-
How to figure the credit.
-
How to claim the credit.
-
Employment taxes you may have to pay as a household employer.
You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or
dependent who is not able to care for himself or herself. The credit can be up to 35% of your expenses. To qualify, you must
pay these expenses so you can work or look for work.
This credit should not be confused with the child tax credit discussed in chapter 34.
Dependent care benefits.
If you received any dependent care benefits from your employer during the year, you may be able to exclude from your
income all or part of them. You must complete Part III of Form 2441 or Schedule 2 (Form 1040A) before you can figure the amount
of your credit. See
Dependent Care Benefits
under
How To Figure the Credit
, later.
Useful Items - You may want to see:
Publication
-
501
Exemptions, Standard Deduction, and Filing Information
-
503
Child and Dependent Care Expenses
-
926
Household Employer's Tax Guide
Form (and Instructions)
-
2441
Child and Dependent Care Expenses
-
Schedule 2 (Form 1040A)
Child and Dependent Care Expenses for Form 1040A Filers
-
Schedule H (Form 1040)
Household Employment Taxes
-
W-7
Application for IRS Individual Taxpayer Identification Number
-
W-10
Dependent Care Provider's Identification and Certification
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 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 (and 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. You cannot
make payments to:
-
Your spouse, or
-
The parent of your qualifying person if your qualifying person is your child and under age 13.
(See
Payments to Relatives or Dependents
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 or deduct dependent care benefits provided by a dependent care benefits plan, the total amount you exclude
or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared
for or $6,000 if two or more qualifying persons were cared for). (If two or more qualifying persons were cared for, the amount
you exclude or deduct will always be less than the dollar limit, since the amount you can exclude or deduct is limited to
$5,000. See
Reduced Dollar Limit
under
How To Figure the Credit
, later.)
These tests are presented in Figure 32-A and are also explained in detail in this chapter.
Your child and dependent care expenses must be for the care of one or more qualifying persons.
A qualifying person is:
-
Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see
Note
later),
-
Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the
year, or
-
A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year,
and either:
-
Was your dependent, or
-
Would have been your dependent except that:
-
He or she received gross income of $3,500 or more,
-
He or she filed a joint return, or
-
You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2008 return.
Special rules may apply for people who had to relocate because of the Midwestern storms, tornadoes, or flooding. For details,
see Pub. 4492-B.
Dependent defined.
A dependent is a person, other than you or your spouse, for whom you can claim an exemption. To be your dependent,
a person must be your qualifying child (or your qualifying relative).
Qualifying child.
To be your qualifying child, a child must live with you for more than half the year and meet other requirements.
More information.
For more information about who is a dependent or a qualifying child, see chapter 3.
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
Yearly Limit
under
Dollar Limit
, later.
Birth or death of otherwise qualifying person.
In determining whether a person is a qualifying person, a person who was born or died in 2008 is treated as having
lived with you for all of 2008 if your home was the person's home the entire time he or she was alive in 2008.
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. To apply for an ITIN, see
Form W-7.
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 or parents living apart.
Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if:
-
The child was under age 13 or was not physically or mentally able to care for himself or herself,
-
The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally
separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived
apart at all times during the last 6 months of the calendar year.
-
The child was in the custody of one or both parents for more than half the year, and
-
You were the child's custodial parent (the parent with whom the child lived for the greater part of 2008).
The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the
child as a dependent under the special rules for a child of divorced or separated parents.
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 taxable 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.
Generally, only taxable compensation is included. However, you can elect to include nontaxable combat pay in earned
income. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your
own election. You should figure your credit both ways and make the election if it gives you a greater tax benefit.
Members of certain religious faiths opposed to social security.
Certain income earned by 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
may not be considered earned income for this purpose. See Earned Income Test in Publication 503.
Not earned income.
Earned income does not include:
-
Child support payments received by you,
-
Pensions and annuities,
-
Social security and railroad retirement benefits,
-
Workers' compensation,
-
Interest and dividends,
-
Unemployment compensation,
-
Scholarship or fellowship grants, except for those reported on a Form W-2 and paid to you for teaching or other services,
-
Nontaxable workfare payments,
-
Income of nonresident aliens that is not effectively connected with a U.S. trade or business, or
-
Any amount received for work while an inmate in a penal institution.
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. (Your spouse also must live with you for more than half the
year.)
Figure the earned income of the nonworking spouse described under (1) or (2) above as explained under
Earned Income Limit
, 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 not physically or mentally 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 a school for the number of hours or classes that the school considers
full time. You must have been a full-time student for some part of each of 5 calendar months during the year. (The months
need not be consecutive.)
School.
The term “ school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. A school does not include an
on-the-job training course, correspondence school, or school offering courses only through the Internet.
Special rules may apply for people who had to relocate because of the Midwestern storms, tornadoes, or flooding. For details,
see Pub. 4492-B.
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.
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.
An expense is not considered work-related merely because you had it while you were working. The purpose of the expense must
be to allow you to work. Whether your expenses allow you to work or look for work depends on the facts.
Example 1.
The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense.
Example 2.
You work during the day. Your spouse works at night and sleeps during the day. You pay for care of your 5-year-old child during
the hours when you are working and your spouse is sleeping. Your expenses are considered work-related.
Volunteer work.
For this purpose, you are not considered to be working 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 $250 a month ($3,000 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 $250 a month, your work-related expenses are limited to $625 (2½ months × $250).
Temporary absence from work.
You do not have to figure your expenses for each day during a short, temporary absence from work, such as for vacation
or a minor illness, if you have to pay for care anyway. Instead, you can figure your credit including the expenses you paid
for the period of absence.
An absence of 2 weeks or less is a short, temporary absence. An absence of more than 2 weeks may be considered a short,
temporary absence, depending on the circumstances.
Example.
You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. You become ill and miss 4 months
of work but receive sick pay. You continue to pay the nanny to care for the children while you are ill. Your absence is not
a short, temporary absence, and your expenses are not considered work-related.
Part-time work.
If you work part-time, you generally must figure your expenses for each day. However, if you have to pay for care
weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including
the expenses you paid for days you did not work. Any day when you work at least 1 hour is a day of work.
Example 1.
You work 3 days a week. While you work, your 6-year-old child attends a dependent care center, which complies with all state
and local regulations. You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Your child attends the
center 5 days a week. Your work-related expenses are limited to $150 a week.
Example 2.
The facts are the same as in Example 1 except the center does not offer a 3-day option. The entire $250 weekly fee may be a work-related expense.
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 care. The cost of a paid care provider may be an expense for
the care of a qualifying person even if another care provider is available at no cost.
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, lodging, 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.
Education.
Expenses for a child in nursery school, pre-school, or similar programs for children below the level of kindergarten
are expenses for care. Expenses to attend kindergarten or a higher grade are not expenses for care. Do not use these expenses
to figure your credit.
However, expenses for before- or after- school care of a child in kindergarten or a higher grade may be expenses for care.
Summer school and tutoring programs are not for care.
Example 1.
You take your 3-year-old child to a nursery school that provides lunch and educational activities as a part of its preschool
childcare service. The lunch and educational activities are incident to the childcare, and their cost cannot be separated
from the cost of care. 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. The cost of sending
your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers
or soccer.
Transportation.
If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for
the care of the qualifying person. This includes transportation by bus, subway, taxi, or private car. However, transportation
not provided by a care provider is not for the care of a qualifying person. Also, if you pay the transportation cost for the
care provider to come to your home, that expense is not for care of a qualifying person.
Fees and deposits.
Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or pre-school, application
fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they are not
directly for care. However, a forfeited deposit is not for the care of a qualifying person if care is not provided.
Example 1.
You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. The fee
you paid is a work-related expense.
Example 2.
You placed a deposit with a pre-school to reserve a place for your 3-year-old child. You later sent your child to a different
pre-school and forfeited the deposit. The forfeited deposit is not for care and so is not 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.
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. See Household Services in Publication 503 for more information.
In this chapter, the term housekeeper refers to any household employee whose services include the care of a qualifying
person.
Payments to Relatives or Dependents
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,
-
Your child who was under age 19 at the end of the year, even if he or she is not your dependent,
-
A person who was your spouse any time during the year, or
-
The parent of your qualifying person if your qualifying person is your child and under age 13.
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.
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.
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.
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, enter “ Tax-Exempt” in the space where the tax form calls for the number.
If you cannot provide all of the information or if 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 to request the required information from the care provider. If you do not use Form W-10, you can get the information
from one of the other sources listed in the instructions for Form W-10 including:
-
A copy of the provider's social security card,
-
A copy of the provider's completed Form W-4 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 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 their 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 Attached Statement” in the columns calling for the information you do not have. Then attach a statement explaining that you requested the information
from the care provider, but the provider did not give you the information. Be sure to write your name and social security
number on this statement. The statement will show that you used due diligence in trying to furnish the necessary information.
U.S. citizens and resident aliens living abroad.
If you are living abroad, your care provider may not have, or be required to get, a U.S. taxpayer identification number
(for example, an SSN or EIN). If so, enter “ LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's identification number.
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 2008 work-related expenses, count only those you paid by December 31, 2008.
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 2007 expenses that you paid in 2008 as work-related expenses for 2008. You may be able to claim an additional
credit for them on your 2008 return, but you must figure it separately. See Payments for previous year's expenses under Amount of Credit in Publication 503.
If you had expenses in 2008 that you did not pay until 2009, you cannot count them when figuring your 2008 credit. You may
be able to claim a credit for them on your 2009 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.
Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense
deduction.
If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. See
Reduced Dollar Limit
, later. But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care
benefits.
Dependent care benefits.
Dependent care benefits include:
-
Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work,
-
The fair market value of care in a daycare facility provided or sponsored by your employer, and
-
Pre-tax contributions you made under a dependent care flexible spending arrangement.
Your salary may have been reduced to pay for these benefits. If you received benefits as an employee, they should be shown
on your W-2 form. See
Statement for employee,
later. Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code N. Enter the
amount of these benefits on the first line of Part III of Form 2441.
Exclusion or deduction.
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. To claim the exclusion, you must complete
Part III of either Form 2441 or Schedule 2 (Form 1040A). You cannot use Form 1040EZ.
If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both
employer and employee. Therefore, you would not get an exclusion from wages. Instead, you would get a deduction on Form 1040,
Schedule C, line 14; Schedule E, line 18 or 28; or Schedule F, line 17. To claim the deduction, you must use Form 2441.
The amount you can exclude or deduct 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). See Earned Income Limit, below.
The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit
except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. For details
or if you or your spouse had nontaxable combat pay, see the instructions for Form 2441 or Schedule 2 (Form 1040A).
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 on your Form W-2 in box 10.
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.
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.
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.
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 $250 if there is one qualifying person in your
home, or at least $500 if there are two or more.
Spouse works.
If your spouse works during that month, use the higher of $250 (or $500) 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
$250 (or $500) 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 $250 (or $500) for that month.
There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. This limit is $3,000
for one qualifying person, or $6,000 for two or more qualifying persons.
If you paid work-related expenses for the care of two or more qualifying persons, the $6,000 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 $3,200 and your work-related
expenses for another qualifying person are $2,800, you can use the total, $6,000, 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 $3,000 limit if you paid work-related expenses for the care
of one qualifying person at any time during the year. Use $6,000 if you paid work-related expenses for the care of more than
one qualifying person at any time during the year.
If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the
dollar limit that applies to you. Your reduced dollar limit is figured in Part III of Form 2441 or Schedule 2 (Form 1040A).
See
Dependent Care Benefits,
earlier, for information on excluding or deducting these benefits.
Example.
George is a widower with one child and earns $24,000 a year. He pays work-related expenses of $2,900 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 dependent care benefit plan. This $1,000 is excluded from George's income.
Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only
$2,000 of the $2,900 work-related expenses he paid. This is because his dollar limit is reduced as shown next.
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 Form 1040, line 38, or Form 1040A, line 22.
The following table shows the percentage to use based on adjusted gross income.
To claim the credit, you can file Form 1040 or Form 1040A. You cannot claim the credit on Form 1040EZ.
Form 1040.
You must complete Form 2441 and attach it to your Form 1040. Enter the credit on Form 1040, line 48. An example of
a filled-in Form 2441 is at the end of this chapter.
Form 1040A.
You must complete Schedule 2 (Form 1040A) and attach it to your Form 1040A. Enter the credit on your Form 1040A, line
29.
Limit on credit.
The amount of credit you can claim is limited to your regular tax (after reduction by any allowable foreign tax credit)
plus your alternative minimum tax, if any.
Tax credit not refundable.
You cannot get a refund for any part of the credit that is more than this limit.
Recordkeeping. You should keep records of your work-related expenses. Also, if your dependent or spouse is not able to care for himself or
herself, your records should show both the nature and the length of the disability. Other records you should keep to support
your claim for the credit are described earlier under
Provider Identification Test.
Employment Taxes for Household Employers
If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are
a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. If the
individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. Self-employed
persons who are in business for themselves are not household employees. Usually, you are not a household employer if the person
who cares for your dependent or spouse does so at his or her home or place of business.
If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion
who works in your home, the worker is not your employee. This control could include providing rules of conduct and appearance
and requiring regular reports. In this case, you do not have to pay employment taxes. But, if an agency merely gives you a
list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee.
If you have a household employee, you may be subject to:
-
Social security and Medicare taxes,
-
Federal unemployment tax, and
-
Federal income tax withholding.
Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. Federal unemployment
(FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their
jobs. Federal income tax is withheld from the employee's total pay if the employee asks you to do so and you agree.
For more information on a household employer's tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its
instructions.
State employment tax.
You may also have to pay state unemployment tax. Contact your state unemployment tax office for information. You should
also find out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance. A
list of state employment tax agencies, including addresses and phone numbers, is in Publication 926.
The following example shows how to figure the credit for child and dependent care expenses for two children when employer-provided
dependent care benefits are involved. The filled-in draft Form 2441 is shown at the end of this chapter.
Illustrated example.
Joan Thomas is divorced and has two children, ages 3 and 9. She works at ACME Computers. Her adjusted gross income
(AGI) is $29,000, and the entire amount is earned income.
Joan's younger child (Susan) stays at her employer's on-site childcare center while she works. The benefits from this
childcare center qualify to be excluded from her income. Her employer reports the value of this service as $3,000 for the
year. This $3,000 is shown on her Form W-2 in box 10, but is not included in taxable wages in box 1.
A neighbor cares for Joan's older child (Seth) after school, on holidays, and during the summer. Joan pays her neighbor
$2,400 for this care.
Joan figures her credit on Form 2441 as follows.
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