Child Care Credit, Other Credits:
Child and Dependent Care Credit &
Flexible Benefit Plans
This is archived information that pertains only to the 2005 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
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
because kindergarten is primarily educational in nature. 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 the correct line (this
amount should appear in box 10 of your Form W-2) and your qualified expenses
on the correct line. The last 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. 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 the qualifying person must have the same principal place of abode as you.
All of the other criteria for claiming the Child and Dependent Care Credit
must also be met.This information can be found in Publication 17,
Chapter 34 .
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 Form 1040 Instructions or the Form 1040A Instructions 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 Form 1040 Instructions or the Form 1040A Instructions 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 Form 1040 Instructions or the Form 1040A Instructions 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 pay qualified tuition and related expenses of
higher education.
- You pay the tuition and related expenses for an eligible
student.
- The eligible student is either yourself, your spouse, or a dependent
for whom you claim an exemption on your tax return.
You cannot claim the Hope Credit if any of the following apply.
- Your filing status is married separately.
- You are listed as a dependent in the Exemptions section
on another person's tax return (such as your parents'). See Who
Can Claim a Dependent's Expenses, later.
- Your modified adjusted gross income can not be above a certain dollar
amount. This information is in Publication 970, Chapter 2.
Modified adjusted gross income is explained later under Does
the Amount of Your Income Affect the Amount of Your Credit.
- You (or your spouse) were a nonresident alien for any part of the tax
year and the nonresident alien did not elect to be treated as a resident alien
for tax purposes. More information on nonresident alien can be found in Publication 519, U.S. Tax Guide for Aliens.
- You claim the Lifetime Learning Credit for the same student in the same
year. This information is found in Publication 970, Chapter
2.
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.
- Did not have expenses that were used to figure a Hope Credit in any 2
earlier tax years.
- Had not completed the first 2 years of postsecondary education (generally,
the freshman and sophomore years of college) before this tax year.
- Was enrolled at least half-time in a program that leads to a degree, certificate,
or other recognized educational credential for at least one academic period
beginning in the tax year.
- Was free of any federal or state felony conviction for possessing or
distributing a controlled substance as of the end of the tax year.
What is a Lifetime Learning Credit?
A nonrefundable tax credit up to a certain dollar amount per family for
all undergraduate and graduate level education. The Lifetime Learning Credit
is calculated by talking a percentage of the qualified educational expenses
paid. This information is found in Publication 970, Chapter
3.
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.
- You pay qualified tuition and related expenses of
higher education.
- You pay the tuition and related expenses for an eligible
student.
- The eligible student is either yourself, your spouse, or a dependent
for who you claim an exemption on your tax return.
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 the tax year for an academic
period beginning in that year or in the first 3 months of the following
year.
For purposes of the Lifetime 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.
- Your filing status is married filing separately.
- You are listed as a dependent in the Exemptions section
on another person's tax return (such as your parent's). See Who
Can Claim a Dependent's Expenses, later.
- Your modified adjusted gross income is above a specified amount. Modified
adjusted gross income is explained later under Does the Amount
of Your Income Affect the Amount of Your Credit.
- You (or your spouse) were a nonresident alien for any part of the tax
year and the nonresident alien did not elect to be treated as a resident for
tax purposes. More information on resident aliens can be found in Publication
519, U.S. Tax Guide for Aliens.
- You claim the Hope credit for the same student in same year.
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,
2006. 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:
- Qualified recipient of assistance under temporary assistance for needy
families (TANF).
- Qualified veteran.
- Qualified ex-felon.
- High-risk youth.
- Vocational rehabilitation referral.
- Qualified summer youth employee.
- Qualified food stamp recipient.
- Qualified SSI recipient.
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.
References:
- Form 5884 (PDF), Work Opportunity Credit
- Form 8850 (PDF), Pre-Screening Notice and
Certification Request for the Work Opportunity and Welfare-to-Work Credits
- Tax Topic 750, Employer Tax Information
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