| Pub. 17, Your Federal Income Tax |
2004 Tax Year |
Chapter 34 - Child and Dependent Care Credit
This is archived information that pertains only to the 2004 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
What's New Combat pay election. If you elected to include nontaxable combat pay in earned income when figuring the earned income credit for 2004, also include
it in earned income
when you figure the amount of dependent care benefits you exclude or deduct from income. For more information, see chapter
38.
Reminders
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.
Introduction
This chapter discusses the credit for child and dependent care expenses and covers the following topics.
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Tests you must meet to claim the credit.
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How to figure the credit.
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How to claim the credit.
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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 36.
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
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501
Exemptions, Standard Deduction, and Filing Information
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503
Child and Dependent Care Expenses
-
926
Household Employer's Tax Guide
Form (and Instructions)
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2441
Child and Dependent Care Expenses
-
Schedule 2 (Form 1040A)
Child and Dependent Care Expenses for Form 1040A Filers
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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.
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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.)
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You (and your spouse if you are married) must keep up a home that you live in with the qualifying person or persons. (See
Keeping Up a
Home Test, later.)
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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 (or 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. (See Payments to Relatives 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 34-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:
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Your dependent who was under age 13 when the care was provided and for whom you can claim an exemption,
-
Your spouse who was physically or mentally not able to care for himself or herself, or
-
Your dependent who was physically or mentally not able to care for himself or herself and for whom you can claim an exemption
(or could
claim an exemption except the person had $3,100 or more of gross income or filed a joint return).
If you are divorced or separated, see Child of Divorced or Separated Parents, later, to determine which parent may treat the child as a
qualifying person.
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 Dollar Limit under How To Figure the Credit,
later.
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. To apply for an ITIN, file Form W-7 with the IRS. The ITIN is entered wherever an SSN is requested on a tax return.
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
To be a qualifying person, your child usually must be your dependent for whom you can claim an exemption. But there is an
exception to this rule
that applies if all of the following are true.
-
You are divorced or separated under a decree of divorce or separate maintenance or a written separation agreement, or you
lived apart from
the other parent at all times during the last 6 months of the year.
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One or both parents had custody of the child for more than half of the year.
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One or both parents provided more than half of the child's support for the year.
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The child was under age 13 or was physically or mentally not able to care for himself or herself.
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Either—
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The custodial parent signed Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, or a
similar statement, agreeing not to claim the child's exemption for the year, or
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The noncustodial parent provided at least $600 for the child's support and can claim the child's exemption under a pre-1985
decree of
divorce or separate maintenance or written agreement.
For purposes of 5(a), a similar statement includes a divorce decree or separation agreement that went into effect after 1984
that allows the
noncustodial parent to claim the child's exemption without any conditions, such as payment of support.
If the exception applies and you are the custodial parent, you can treat your child as a qualifying person even if you cannot
claim the child's
exemption. If you are the noncustodial parent, you cannot treat your child as a qualifying person even if you can claim the
child's exemption.
If the exception does not apply, use the rules described earlier to determine whether your child is a qualifying person.
You can use Figure 34-B to see whether this exception applies to you.
Example.
You are divorced and have custody of your 8-year-old child. You sign Form 8332 to allow your ex-spouse to take the exemption.
You pay childcare
expenses so you can work. Your child is a qualifying person and you, the custodial parent, can claim the credit for those
expenses, even though your
ex-spouse claims an exemption for the child.
Custodial parent.
You are the custodial parent if, during the year, you have custody of your child longer than your child's other parent
has custody.
To claim the credit, you must keep up a home. You and one or more qualifying persons must live in the home.
You are keeping up a home if you (and your spouse if you are married) pay more than half the cost of running it for the year.
Home.
The home you keep up must be the main home for both you and the qualifying person. Your home can be the qualifying
person's main home even if he or
she does not live there all year because of his or her:
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Birth,
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Death, or
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Temporary absence due to:
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Sickness,
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School,
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Business,
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Vacation,
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Military service, or
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Custody agreement.
Costs of keeping up 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.
Costs not included.
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.
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.
Earned income also includes nontaxable employee compensation such as parsonage allowances, meals and lodging furnished
for the convenience of the
employer, voluntary salary deferrals, military basic quarters and subsistence allowances and in-kind quarters and subsistence,
and military pay earned
in a combat zone.
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 pensions or annuities, social security payments, workers' compensation, interest, dividends,
or unemployment
compensation. It also does not include scholarship or fellowship grants, except amounts paid to you (and reported on Form
W-2) for teaching, research,
or other services.
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:
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A full-time student, or
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Physically or mentally not able to care for himself or herself.
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 physically or mentally not 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 and attend a school for the number of hours or classes that the
school considers full time. You
must have been a student for some part of each of 5 calendar months during the year. (The months need not be consecutive.)
If you attend school only
at night, you are not a full-time student. However, as part of your full-time course of study, you may attend some night classes.
School.
The term “ school” includes elementary schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical
schools. It does not include on-the-job training courses, correspondence schools, and night schools.
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.
Whether your expenses allow you to work or look for work depends on the facts. For example, the cost of a sitter while you
and your spouse go out
to eat is not normally a work-related expense.
An expense is not considered work related merely because you had it while you were working. The purpose of the expense must
be to enable you to
work.
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 (21/ months × $250).
Payments while you are out sick.
Do not count as work-related expenses amounts you pay for child and dependent care while you are off work because
of illness. These amounts are not
paid to allow you to work. This applies even if you get sick pay and are still considered an employee.
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
the care.
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, 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 to attend first grade or a higher grade are not expenses for care. Do not use these expenses to figure your
credit.
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. 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.
Transportation.
The cost of getting a qualifying person from your home to the care location and back, or from the care location to
school and back, is not
considered a work-related expense. This includes the costs of bus, subway, taxi, or private car. Also, if you pay the transportation
cost for the care
provider to come to your home, you cannot count this cost as 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.
Taxes paid on wages.
The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. See Employment Taxes for Household
Employers, later.
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:
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A dependent for whom you (or your spouse if you are married) can claim an exemption, or
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Your child who was under age 19 at the end of the year, even if he or she is not your dependent.
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.
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You file a separate return.
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Your home is the home of a qualifying person for more than half the year.
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You pay more than half the cost of keeping up your home for the year.
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Your spouse does not live in your home for the last 6 months of the year.
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:
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Name,
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Address, and
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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, write “ 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 you provide 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:
-
A copy of the provider's social security card,
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A copy of the provider's driver's license (in a state where the license includes the social security number),
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A copy of the provider's completed Form W-4 if he or she is your household employee,
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A copy of the statement furnished by your employer if the provider is your employer's dependent care plan, or
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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. Write “ See page 2” in the columns calling for the information you do not have. On the bottom of page 2,
explain that you requested the information from the care provider, but the provider did not give you the information. This
statement will show that
you used due diligence in trying to furnish the necessary information.
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 2004 work-related expenses, count only those you paid by December 31, 2004.
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 2003 expenses that you paid in 2004 as work-related expenses for 2004. You may be able to claim an additional
credit for them on your
2004 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 2004 that you did not pay until 2005, you cannot count them when figuring your 2004 credit. You may
be able to claim a
credit for them on your 2005 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 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 W-2 form.
See
Statement for employee, later.
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.
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 but instead a deduction on Schedule C (Form 1040), line 14; Schedule
E (Form 1040), line 18; or
Schedule F (Form 1040), line 17. Partnerships would report a separately-stated deduction on Schedule K-1 (Form 1065), line
11, that you enter on
Schedule E (Form 1040), line 28.
If your plan qualifies, you must complete Part III of either Form 2441 or Schedule 2 (Form 1040A) to claim the exclusion
or deduction. You cannot
use Form 1040EZ.
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,
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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).
The definition of earned income for this purpose is not exactly the same as the definition for the credit. 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.
Forfeitures.
Forfeitures are amounts credited to your dependent care benefit account (flexible spending account) and included in
the amount shown on your Form
W-2 in box 10, 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 13 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.
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 on lines 28 through 32 of Form 2441 or lines 24 through 28 of 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 37, or Form 1040A, line 22. 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
|
|
$15,000
|
|
35%
|
|
| |
|
15,000
|
|
17,000
|
|
34%
|
|
| |
|
17,000
|
|
19,000
|
|
33%
|
|
| |
|
19,000
|
|
21,000
|
|
32%
|
|
| |
|
21,000
|
|
23,000
|
|
31%
|
|
| |
|
23,000
|
|
25,000
|
|
30%
|
|
| |
|
25,000
|
|
27,000
|
|
29%
|
|
| |
|
27,000
|
|
29,000
|
|
28%
|
|
| |
|
29,000
|
|
31,000
|
|
27%
|
|
| |
|
31,000
|
|
33,000
|
|
26%
|
|
| |
|
33,000
|
|
35,000
|
|
25%
|
|
| |
|
35,000
|
|
37,000
|
|
24%
|
|
| |
|
37,000
|
|
39,000
|
|
23%
|
|
| |
|
39,000
|
|
41,000
|
|
22%
|
|
| |
|
41,000
|
|
43,000
|
|
21%
|
|
| |
|
43,000
|
|
No limit
|
|
20%
|
|
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 47. 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 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 the instructions for 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 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, that person 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, 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 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 in
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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