Child Dependent Care?

[dan doshan]

Are you Guilty or not guilty ... I suspect I have been guilty in the past about missing out on this credit on some returns. For example ... Taxpayer has two children ages 12 and 4. Client says they paid 4500 dollars in day care for the 4 year old child and no day care at all for the 12 year old as he or she is in school during the day. I am pretty sure that in the past I only listed the 4 year old on the child care form 2442? resulting in the client only getting credit for the max 3000 per qualifying child. Whereas I should have been listing the 12 year old on the form as a qualifying child also even though the client paid no day care expense for this child. Resulting in the client getting the benefit of the full 4500 paid.
At least that is how the rules and instructions indicate it should or can be done. And I am pretty sure that in the past I have not been doing this. How about anyone else?

[ChEAr$]

Are you Guilty or not guilty ... I suspect I have been guilty in the past about missing out on this credit on some returns. For example ... Taxpayer has two children ages 12 and 4. Client says they paid 4500 dollars in day care for the 4 year old child and no day care at all for the 12 year old as he or she is in school during the day. I am pretty sure that in the past I only listed the 4 year old on the child care form 2442? resulting in the client only getting credit for the max 3000 per qualifying child. Whereas I should have been listing the 12 year old on the form as a qualifying child also even though the client paid no day care expense for this child. Resulting in the client getting the benefit of the full 4500 paid.
At least that is how the rules and instructions indicate it should or can be done. And I am pretty sure that in the past I have not been doing this. How about anyone else?

Really? the rules and instructions indicate it should be done that way? I don't think so.

[BP.]

I should have been listing the 12 year old on the form as a qualifying child also even though the client paid no day care expense for this child. Resulting in the client getting the benefit of the full 4500 paid. At least that is how the rules and instructions indicate it should or can be done.

Both kids are qualifying. Form 2441 instructions, http://www.irs.gov/pub/irs-pdf/i2441.pdf

p. 3, middle right:

". . . it is possible a qualifying child could have no expenses and a second
child could have expenses exceeding $3,000. You should list -0- for the one child
and the actual amount for the second child. The $6,000 limit would still be used to
compute your credit."

[TaxGuyBill]

Yep, he's right. I didn't know that.

Here is the law: Regulation 1.21-2(a)(3):

"A taxpayer may take into account the total amount of employment-related expenses that do not exceed the annual dollar limitation although the amount of employment-related expenses attributable to one qualifying individual is disproportionate to the total employment-related expenses. For example, a taxpayer with expenses in 2007 of $4,000 for one qualifying individual and $1,500 for a second qualifying individual may take into account the full $5,500."

[Roland Slugg]

Excellent post, dan doshan, and you are quite right. The existence of the second qualifying child does serve to potentially double the credit for the first child, even though no DC expenses were incurred or paid for child #2.

[Gene V]

Thanks Dan for reminding us, I almost forgot that--we bought it up couple years ago, however its easy to forget.

http://forum.thetaxbook.com/showthread.php?17482-Form-2441

[ATSMAN]

Add the amounts in column (c) of line 2. Do not enter more than $3,000 for one qualifying
person or $6,000 for two or more persons. If you completed Part III, enter the amount
from line 31

[Gary2]

A related quiz question:

Taxpayer has a W-2 showing $5000 in dependent care benefits.

Taxpayer had no dependent care expenses.

Is the $5K taxable, not taxable, or do you need more info?

[ATSMAN]

If taxpayer had pre-tax deduction of $5000 for dependent care expenses but in fact had 0 dependent care expenses then the $5000 is taxable.

[FEDUKE404]

Taxable

Employee shows $5k in Box 10 of W2.

Employee has no qualifying dependent care expenses.

The $5k therefore constitutes taxable income.

The amount shown on line 7 of Form 1040 is increased by $5k, and the annotation "DCB" should appear somewhere in the text for that line.

FWIW: Assuming the W2 information was originally entered properly, your tax software should perform these functions automatically.

While "more information" can always be helpful to understand some things, in this case the issue is pretty much cut and dry.

FE

[BP.]

A related quiz question:

Taxpayer has a W-2 showing $5000 in dependent care benefits.

Taxpayer had no dependent care expenses.

Is the $5K taxable, not taxable, or do you need more info?

How about more info about the “no expenses” statement?

Is that the equivalent of saying that no qualifying care was provided during the year?

Did the employer provide day care facilities, so the taxpayer imagines that, out-of-pocket, they have “no expenses?”

Does the employer have a grace period to use the amounts in the following year?

Probably rare, but possible . . .

[Gary2]

How about this question: What is the significance of the word "forfeited" on line 14 of Form 2441?

[S T]

Example from 2441 Instructions

Line 14
If you had an employer-provided dependent care plan, enter on line 14 the total of the following amounts included on line 12.

•Any amount you forfeited. You forfeited an amount if you did not receive it because you did not incur the expense. Do not include amounts you expect to receive at a future date.

•Any amount you did not receive but are permitted by your employer to carry forward and use in the following year during a grace period.


Example.

Under your employer's dependent care plan, you chose to have your employer set aside $5,000 to cover your 2013 dependent care expenses. The $5,000 is shown on your Form W-2, in box 10. In 2013, you incurred and were reimbursed for $4,950 of qualified expenses. You would enter $5,000 on line 12 and $50, the amount forfeited, on line 14. You would also enter $50 on line 14 if, instead of forfeiting the amount, your employer permitted you to carry the $50 forward to use during the grace period in 2014.

Sandy

[Gary2]

Example from 2441 Instructions

So, let's start connecting the dots. Doesn't that example change the initial answers to my first question?

[mactoolsix]

Gary2 - The word "forfeited" is really misleading.

From the 2441 instructions: "You forfeited an amount if you did not receive it because you did not incur the expense." (my emphasis)

From the example: ". . . . employer set aside $5,000. . . ." W2 box - not included in box 1
. ". . . you incurred and were reimbursed for $4,950 of qualified expenses. . . " You actually received (were reimbursed) only 4,950. The $50 was never received - it was forfeited. Thus it does not get added to taxable income, enter on form 2441 line 14.
If the employer allows the carryover to the next year, then this would be entered on form 2441 line 14.

So, if you had actually received and not used the $50, add it to 1040 line 7 (DCB)

I think this is correct??

Mike