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 22 through 26 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 36 of Form 1040 or line 22 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 2001 that you paid in 2002, you may be able to increase the credit on your 2002 return. Attach a statement to your form showing how you figured the additional amount from 2001. Then write CPYE and the amount of the credit on the dotted line next to line 9 on Form 2441 or in the space to the left of line 9 on Schedule 2 (Form 1040A). 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.
Worksheet 1. Worksheet for 2001 Expenses Paid in 2002 (Note: Use this worksheet to figure the credit you may claim for 2001 expenses paid in 2002.)
| 1. |
Enter your 2001 qualified expenses paid in 2001 |
1. |
|
| 2. |
Enter your 2001 qualified expenses paid in 2002 |
2. |
|
| 3. |
Add the amounts on lines 1 and 2 |
3. |
|
| 4. |
Enter $2,400 if care was for one qualifying person ($4,800 if for two or more) |
4. |
|
| 5. |
Enter any dependent care benefits received for 2001 and excluded from your income (from line 18 of 2001 Form 2441 or Schedule 2 (Form 1040A)) |
5. |
|
| 6. |
Subtract amount on line 5 from amount on line 4 and enter the result |
6. |
|
| 7. |
Compare your earned income for 2001 and your spouse's earned income for 2001 and enter the smaller amount |
7. |
|
| 8. |
Compare the amounts on lines 3, 6, and 7 and enter the smallest amount |
8. |
|
| 9. |
Enter the amount on which you figured the credit for 2001 (from line 6 of 2001 Form 2441 or Schedule 2 (Form 1040A)) |
9. |
|
| 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 |
10. |
|
| 11. |
Enter your 2001 adjusted gross income (from line 33 of your 2001 Form 1040 or line 19 of your 2001 Form 1040A) |
11. |
|
| 12. |
Find your 2001 adjusted gross income in the table of percentages (shown earlier) and enter the corresponding decimal amount here |
12. |
|
| 13. |
Multiply line 10 by line 12. Add this amount to your 2002 credit and enter the total on line 9 of your 2002 Form 2441 or Schedule 2 (Form 1040A). Write CPYE, the amount of this credit for a prior year's expenses, and the name and taxpayer identification number of the person for whom you paid the prior year's expenses on the dotted line next to line 9 of Form 2441 or in the space to the left of line 9 on Schedule 2 (Form 1040A) |
13. |
|
Example. In 2001, 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 2001 and $600 in 2002. Their adjusted gross income for 2001 was $30,000. Sam's earned income of $14,000 was less than Kate's earned income. A credit for their 2001 expenses paid in 2002 is not allowed in 2001. It is allowed for the 2002 tax year, but they must use their adjusted gross income for 2001 to compute the amount. The worksheet they use to figure this credit is shown on the previous page.
Filled- In Worksheet 1. Worksheet for 2001 Expenses Paid in 2002 - Illustration for Sam and Kate's Example. (Note: Use this worksheet to figure the credit you may claim for 2001 expenses paid in 2002.)
| 1. |
Enter your 2001 qualified expenses paid in 2001 |
1. |
$ 2,000 |
| 2. |
Enter your 2001 qualified expenses paid in 2002 |
2. |
600 |
| 3. |
Add the amounts on lines 1 and 2 |
3. |
2,600 |
| 4. |
Enter $2,400 if care was for one qualifying person ($4,800 if for two or more) |
4. |
2,400 |
| 5. |
Enter any dependent care benefits received for 2001 and excluded from your income (from line 18 of 2001 Form 2441 or Schedule 2 (Form 1040A)) |
5. |
0 |
| 6. |
Subtract amount on line 5 from amount on line 4 and enter the result |
6. |
2,400 |
| 7. |
Compare your earned income for 2001 and your spouse's earned income for 2001 and enter the smaller amount |
7. |
14,000 |
| 8. |
Compare the amounts on lines 3, 6, and 7 and enter the smallest amount |
8. |
2,400 |
| 9. |
Enter the amount on which you figured the credit for 2001 (from line 6 of 2001 Form 2441 or Schedule 2 (Form 1040A)) |
9. |
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 |
10. |
400 |
| 11. |
Enter your 2001 adjusted gross income (from line 33 of your 2001 Form 1040 or line 19 of your 2001 Form 1040A) |
11. |
30,000 |
| 12. |
Find your 2001 adjusted gross income in the table of percentages (shown earlier) and enter the corresponding decimal amount here |
12. |
.20 |
| 13. |
Multiply line 10 by line 12. Add this amount to your 2002 credit and enter the total on line 9 of your 2002 Form 2441 or Schedule 2 (Form 1040A). Write CPYE, the amount of this credit for a prior year's expenses, and the name and taxpayer identification number of the person for whom you paid the prior year's expenses on the dotted line next to line 9 of Form 2441 or in the space to the left of line 9 on Schedule 2 (Form 1040A) |
13. |
$ 80 |
Sam and Kate add the $80 from line 13 of this worksheet to their 2002 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 in the space to the left of line 9.
How To Claim the Credit
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 line 46 of your Form 1040.
Form 1040A. You must complete Schedule 2 (Form 1040A) and attach it to your Form 1040A. Enter the credit on line 29 of your Form 1040A.
Limit on credit. The amount of credit you can claim is limited to the amount of your regular tax (after reduction by any allowable foreign tax credit) plus your alternative minimum tax, if any. For more information, see Form 2441 or Schedule 2 (Form 1040A).
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 length of the disability. Other records you should keep to support your claim for the credit are described under Provider Identification Test, earlier.
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