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Taxable Dependent Care Benefits and MFS

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    Taxable Dependent Care Benefits and MFS

    First time I have ever had this situation and I need some help.

    Taxpayer has $5000 of dependent care benefits in box 10 of W2. They have 3 kids in day care, so total amount spent there is well over the $5000. Taxpayer and spouse each earned over $50k last year (spouse is self-employed). They want to file separate returns - so I know they cannot claim a credit on form 2441. My question is how much of the dependent care benefits are taxable? When I follow the instructions for line 19 of form 2441 to include the spouse's income and plug that in my software, it looks like the taxpayer can exclude $2500 from income and include the other $2500 on line 7 as DCB. Does this sound correct?

    #2
    Mfs-dependent care benefits

    Appears correct. See TTB P. 11-5 (right column, second Paragraph from bottom; Code Section 129 (a)(2).

    Planning point: what is the TP 'deferring' or receving as DBC for 2014?

    At the end of the day, while losing the Dep Care Credit, TP and spouse may actually have a lower tax bill.
    Friends double; family triple. Don't buy an audit for yourself. If someone has to go to jail make sure it is the client. Remember it is only taxes, nothing important.

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