Child and Dependent Care Credit & Flexible Benefit Plans (2004 IRS FAQ)

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IRS FAQ 7.1 Child Care Credit/Other Credits  : Child and Dependent Care Credit & Flexible Benefit Plans

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.



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