For first time I have a customer with dependent care benefits in box 10 so this is new to me. 4000 in box 10 of the W-2. Child care was 5375 for one child. The 4000 is not taxable and looks as if the 1375 above that paid for child care does not qualify for the Child Care credit because of the 3000 limit per child. Is this correct? Customer wants to know why they can't get a child care credit for the amount paid over the 4000.
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Answer
The dependent care credit maxes out at $3,000 for one child. This is one reason why you do DCB instead. Thye should have gone for the whole $5,000. Maybe next year they will. -
Taxpayer needs to make choice and then accept it
You still have to fill out the Form 2441, and Part III of same should clear up everything.
There is always the decision for the taxpayer to make whether to go with the Form 2441 credit or to use the DCB employer option. Generally speaking, the higher the tax bracket (and especially if there is only ONE child), the higher the probability that DCB is more beneficial.
The taxpayer cannot have it both ways. He can get the tax savings on up to $5k of earned income removed from taxation (and then ZERO Form 2441 credit) or he could have gotten the Form 2441 credit for only the first $3k of expenses paid for one child and then paid full taxes on the $5k of earned income that was then not excluded.
Kram BergGold nailed it: Next year the guy likely should put $5k into the DCB account for maximum tax savings. Of course, since this is February that door may already be closed with his employer.
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One way they could use it:
If there's more than one "qualifying person" for the purpose of the Child Care Credit, and even if that person's expenses are zero, you'll have the $1,375 available for the credit. Check pub 503, or the 2441 instructionsComment
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