My spouse and I both work and are eligible for the Child and Dependent Care Credit. May I include my 5 year old son's parochial school kindergarten tuition cost as a qualified expense in Form 2441, Child Care Expenses?

The expenses for kindergarten do not qualify for the dependent care credit if the kindergarten is primarily educational in nature. Expenses for school in the first grade or higher do not qualify for the credit. However, you can count the part of the expenses of sending your child to school that is for your child's care if it can be separated from the expenses of education. For example, you may count the cost of an after school care program even though the school tuition does not qualify.

I was under the impression that a Dependent Care Benefit Plan would benefit me, not penalize me with an increase in taxes. How can my employer say they provided a benefit in the total amount of $3,000 in W-2, Block 10 when I had $3,000 in wages set aside for dependent care benefits?

The actual mechanism for this type of plan is an agreement to voluntarily reduce your salary in return for an employer-provided fringe benefit. These plans must be set up this way because you have a choice of whether to receive the cash wages or the benefits, which would make the benefit taxable to you. Therefore, the benefits are actually employer provided or funded. You are receiving a tax benefit because you are not paying taxes on the money that is set aside.

How do I complete Form 2441 if I have flexible Spending Account?

You must complete Part III of Form 2441 (PDF), Child and Dependent Care Expenses, (or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers) to claim the exclusion of the benefits from income even if you cannot claim the credit. Enter your total employer-provided dependent care benefits on line 14 (this amount should appear in box 10 of your Form W-2) and your qualified expenses on line 17. The last six lines of Part III will determine whether you can also take the credit and what your dollar limit is on qualified expenses. Also complete Part I, Persons or Organizations Who Provided the Care.

My babysitter refused to provide me with her social security number. Can I still claim what I paid for child care on my taxes while I worked? If so, how?

Yes, assuming that you already meet the other requirements to claim the child care credit, but are missing the required ID number of the provider, you can still claim the credit by demonstrating "due diligence" in attempting to secure the needed information.

When the care provider refuses to give the identifying information, the taxpayer can still claim the credit and is instructed to provide whatever information is available about the provider (such as name and address) on the form used to claim the credit Form 2441 (PDF), Child and Dependent Care Expenses, or Form 1040A, Schedule 2 (PDF), Child and Dependent Care Expenses for Form 1040A Filers). The taxpayer should write "see page 2" in the columns calling for the missing information. He/she would write at the bottom of page 2 that the provider refused to give the requested information. This statement will show that the taxpayer used due diligence in trying to secure and furnish the necessary information.

I am thinking of having a family member baby-sit for my child full time in their own home while I work. Are either of us responsible for taxes on the money I would pay? Can I claim this money as a child care expense even though my family member is not a registered day care provider?

You may have qualified child care expenses if the family member baby-sitting is not your dependent or your child under age 19 and you meet all the tests to claim the Child and Dependent Care Credit. Who is responsible for taxes depends on whether your family member is your employee or is self-employed. See Publication 15-A (PDF) , Employer's Supplemental Tax Guide, for a discussion of how to tell whether someone who is performing services for you is an employee or an independent contractor. If your family member is not your employee, then the family member will be responsible for paying income taxes and self-employment taxes on the money earned. These rules are explained in Pub. 533, Self-Employment Tax. If your family member is your employee, then you are generally responsible for withholding and paying the taxes. However, special rules apply to family employees. See Publication 15 , Circular E, Employer's Tax Guide, for these rules.

Can elderly day care payments qualify for the Child and Dependent Care Credit?

Elderly day care payments may qualify as Child and Dependent Care Expenses. In order to be a qualifying person, the person receiving the elderly day care must be either your spouse who was physically or mentally not able to care for himself or your dependent who was physically not able to care for himself and for whom you can claim an exemption (or could claim an exemption except the person had $3,100 or more of gross income in the year 2004) (for 2005, gross income of $3,100 or more). All of the other criteria for claiming the Child and Dependent Care Credit must also be met.

Does the Form 8332 (used to release the exemption to the noncustodial parent) affect the Child Tax Credit?

Yes. The Child Tax Credit can only be claimed by the parent claiming the exemption. In this case the noncustodial parent would qualify for the dependency exemption and therefore the child tax credit. Please refer to the Instructions for Form 1040 or the Instructions for Form 1040A index for Child Tax Credit. The referenced pages will explain who qualifies for this credit, and how to calculate it.

Can you file for the Child Tax Credit and the Child Care Credit, too?

The Child Tax Credit and the Child and Dependent Care Credit can both be claimed on the same return. They can be claimed on either Form 1040 (PDF), U.S. Individual Income Tax Return, or Form 1040A (PDF), U.S. Individual Income Tax Return. Please refer to the Instructions for Form 1040 or the Instructions for Form 1040A index for the Child Tax Credit. The referenced pages will explain who qualifies for the Child Tax Credit, and how to calculate it. Publication 503, Child and Dependent Care Expenses, has more information for the Child Care Credit.

Can I get the Child Tax Credit for a child with an ITIN, not a social security number?

Yes, with an individual tax identification number (ITIN), you can claim the Child Tax Credit if you otherwise qualify. The Child Tax Credit can only be claimed by the parent claiming the child as a dependent.

Please refer to the Instructions for Form 1040 or the Instructions for Form 1040A index for the Child Tax Credit. The referenced pages will explain who qualifies for the Child Tax Credit, and how to calculate it.

Can I get the Credit for the Elderly or the Disabled?

Generally, if you were age 65 or older or disabled and your income and nontaxable social security and other nontaxable pension are below specified amounts, you may be able to take this credit. For more details, refer to Tax Topic 603, Credit for the Elderly or the Disabled, or Publication 524, Credit for the Elderly or the Disabled.

How is the amount of the Hope or Lifetime Learning Credit determined?

The amount of the credit is determined by the amount you pay for qualified tuition and related expenses paid for each eligible student and the amount of your modified adjusted gross income (AGI).

What expenses qualify for the education credits?

Expenses that qualify are tuition and fees required for enrollment or attendance at any college, vocational school, or other post-secondary educational institution eligible to participate in the student aid programs administered by the Department of Education.

Qualified expenses do not include books, room and board, student activities, athletics (unless the course is part of the student's degree program), insurance, equipment, transportation, or other similar personal, living, or family expenses. The cost of books and equipment are generally not qualified expenses because eligible educational institutions usually do not require that fees for such books or equipment be paid to the institution as a condition of the student's enrollment or attendance at the institution.

Are expenses to attend private high schools eligible for the education credits?

No. Expenses paid to attend high school do not qualify for the education credits because a high school is not an eligible educational institution. An eligible educational institution is any college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit making) post-secondary institutions.

Can I claim an education credit if I am married but file separately?

No. Neither the Hope Credit nor the Lifetime Learning Credit can be claimed if the individual is married but filed a separate return.

If I pay college tuition and fees with a scholarship, can I claim an education credit on Form 8863 for those payments?

No. You cannot claim a credit for the amount of higher education expenses paid for by tax-free scholarships.

If the amount of qualified tuition and fees I pay is greater than the amount of my scholarship, should I fill out Form 8863? If I cannot use Form 8863 because I received a scholarship, what can I do?

You must reduce the qualified expenses by the amount of any tax-free educational assistance. Do not reduce the qualified expenses by amounts paid with the student's earnings, loans, gifts, inheritances, and personal savings. Also, do not reduce the qualified expenses by any scholarship reported as income on the student's return or any scholarship which, by its terms, cannot be applied to qualified tuition and related expenses.

If tuition was paid by a government subsidized loan, can I still take the Hope or Lifetime Learning Credit?

If you take out a loan to pay higher education expenses, those expenses may qualify for the credit if you will be required to pay back the loan. The credit is claimed in the year in which the expenses are paid, not in the year in which the loan is repaid.

Who can claim the Hope Credit?

Generally, you can claim the Hope Credit if all three of the following requirements are met.

You cannot claim the Hope Credit if any of the following apply.

In general, qualified tuition and related expenses are tuition and fees required for enrollment or attendance at an eligible educational instititution

Eligible Education Institution. An eligible educational institution is an college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

To claim the Hope Credit, the student for whom you pay qualified tuition and related expenses must be an eligible student. This is a student who meets all of the following requirements.

What is a Lifetime Learning Credit?

A nonrefundable tax credit up to $2,000 per family for all undergraduate and graduate level education. Figured by taking 20% of the first $10,000 of qualified educational expenses paid.

Who is eligible for the Lifetime Learning Credit?

Generally, you can claim the Lifetime Learning Credit if all three of the following requirements are met.

The Lifetime Learning Credit is based on qualified tuition and related expenses you pay for yourself, your spouse, or a dependent for who you can claim an exemption on your tax return. Generally, the credit is allowed for qualified tuition and related expenses paid in 2004 for an academic period beginning in 2004 or in the first 3 months of 2005.

For purposes of the Llifetime Learning Credit, an eligible student is a student who is enrolled in one or more courses at an eligible educational institution.

An eligible educational institution is an college, university, vocational school, or other post-secondary educational institution eligible to participate in a student aid program administered by the Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) post-secondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

You cannot claim the Lifetime Learning Credit if any of the following apply.

Can the Lifetime Learning Credit be used for a high school student taking classes at an approved college prior to graduation from high school?

College courses taken while attending high school may qualify for the Hope Scholarship Credit or for the Lifetime Learning Credit if the student meets the qualifications for claiming either of the credits.

I heard there is a credit for hiring certain groups of workers, such as veterans or ex-felons. Is that the same thing as the Work Opportunity Tax Credit?

The Work Opportunity Credit provides an incentive to hire individuals from targeted groups that have a particularly high unemployment rate or other special employment needs. The credit can be as much as 40% of the "qualified first year wages" you pay to individuals who begin work for you before January 1, 2005. The credit can be claimed by filing Form 5884 (PDF), Work Opportunity Credit.

An individual is a member of a targeted group if he or she is a:

An individual is not considered a member of a targeted group unless your state employment security agency certifies him or her as a member. This certification requirement can be satisfied in either of two ways:

1) On or before the day on which the individual begins work for you, you have received a certification from your state employment security agency that the individual is a member of a targeted group, or

2) On or before the day you offer employment to an individual, you complete Form 8850 (PDF), Pre-Screening Notice and Certification Request for the Work Opportunity and Welfare-to-Work Credits, and send it to your state employment security agency no later than the 21st day after the individual begins work.

You must receive the certification before claiming the credit.

Refer to Tax Topic 750, Employer Tax Information, and Tax Info for Business, on this site for other employer information.