Form 2441

[JG EA]

This is really basic for you I'm sure. I'd just like to make sure I have this right:

Client has one child and spent $6000 on child care. In box 10 on the W-2 there is $4500 of child care benefits.

The extra $1500 is not counted because the limit is $3000 for one child no matter who pays it? Right?

Yet the $4500 is deductible because of this special provision of being paid for by the employer?

[Koss]

Right

The pretax exclusion works a lot like the pretax deduction from wages for the payment of health insurance through the employer's plan. For the pretax exclusion, I think the max is $5000. So it just isn't taxable. Period. It isn't included in Box 1 of Form W-2, so it won't be included in the AGI.

You are correct that they cannot claim the credit on Form 2441 because that credit maxes out at $3000 per child, and you can't claim the credit for any amount paid with the pretax money.

But you still have to complete Form 2441 in order to document the fact that the taxpayer properly spent at least $4500 on qualifying dependent care. Because if they didn't spend it all, the unspent amount becomes taxable, and gets added back into Line 7 with a notation in the margin (kind of like a taxable scholarship).

BMK

[JG EA]

Thank you so much. I want to put down all the expenses the client paid on the return so they will understand that it is not the kinds of expenses that were not deductible but the dollar amount. But then I needed verification as to how it all worked together. Since one day care was maxed out anyway and if I didn't put down the other one it might make them wonder. Anyway I appreciate the explanation.