Child Care Expenses - Not Claiming the Dependent?

[zeros]

Client has two children and has the flex plan with $5000 on the w-2. She cannot take one of the children this year according to the divorce degree but they both live with her and she paid all the child care expenses for both children. Total childcare expenses were about $5500. Can she claim the child-care deduction for the non-dependent? Confusing.

[ATSMAN]

Client has two children and has the flex plan with $5000 on the w-2. She cannot take one of the children this year according to the divorce degree but they both live with her and she paid all the child care expenses for both children. Total childcare expenses were about $5500. Can she claim the child-care deduction for the non-dependent? Confusing.

This question comes up a lot and here is the answer:

Child of divorced or separated parents or parents living apart. Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if:
The child was under age 13 or was not physically or mentally able to care for himself or herself.
The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year.
The child was in the custody of one or both parents for more than half the year, and You were the child's custodial parent.

Emphasis your client is the custodial parent!

[Burke]

Client has two children and has the flex plan with $5000 on the w-2. She cannot take one of the children this year according to the divorce degree but they both live with her and she paid all the child care expenses for both children. Total childcare expenses were about $5500. Can she claim the child-care deduction for the non-dependent? Confusing.

It sounds as if she may have a pre-tax dependent care plan if it is showing up in Box 10 of her W-2. Is this the case? Then, there would be no deduction except for the excess over $5K.

[FEDUKE404]

Dealeing with W2 Box 10 issues

It sounds as if she may have a pre-tax dependent care plan if it is showing up in Box 10 of her W-2. Is this the case? Then, there would be no deduction except for the excess over $5K.

True, but of course if she cannot first "claim" the qualifying expenses via Form 2441, then those expenses revert to taxable income included on line 7 of Form 1040 with that nasty "DCB" added.

BTW: I thought "divorce decrees" didn't carry much weight with the IRS anymore. . ."time of possession" is now the controlling factor?

BTW2: Are employer dependent care plans still capped at $5k per year? If so, and all other criteria are properly met, parent could still get tax credit for the remaining $500 of expenses paid. She just has to trudge through Part III of Form 2441 first.

FE

[dtlee]

The custodial parent (parent with most nights of custody or if equal the higher AGI) is allowed to claim the Child Care for the children.

When you say:

She cannot take one of the children this year according to the divorce degree but they both live with her and she paid all the child care expenses for both children.

What you are actually indicating is that she has forwarded the other parent Form 8332, allowing the other parent to claim the Dependent Exemption and the Child Tax Credit for one of the children under the Divorced or Separated Parents rule. This will not prohibit her from claiming the Child Care that she paid for.

In the return, you will indicate the children for whom the care was paid for and the amount that was paid by the employer. The full $5,000 will be excluded. Since there are two children and the actual expenses were $5,500, the $500 excess will be eligible for the credit.

Of course, if the other spouse claims the children incorrectly, you may have to do some correspondence.

[taxea]

True, but of course if she cannot first "claim" the qualifying expenses via Form 2441, then those expenses revert to taxable income included on line 7 of Form 1040 with that nasty "DCB" added.

BTW: I thought "divorce decrees" didn't carry much weight with the IRS anymore. . ."time of possession" is now the controlling factor?

BTW2: Are employer dependent care plans still capped at $5k per year? If so, and all other criteria are properly met, parent could still get tax credit for the remaining $500 of expenses paid. She just has to trudge through Part III of Form 2441 first.

FE

They don't. IRS law trumps court orders. In this case she would have to give F8332 to the non-custodial client if she provided more support than his support payments did or if her income is higher than his.

[FEDUKE404]

Huh ?

They don't. IRS law trumps court orders. In this case she would have to give F8332 to the non-custodial client if she provided more support than his support payments did or if her income is higher than his.

I believe the main topic of the original post was how / how much of the $5,500 daycare expenses the mother can claim via Form 2441 and its relationship to employer dependent care benefits as shown on the W2.

The collateral dependency issues were just mentioned in passing. . .Form 8332 is indeed relevant IF the non-custodial parent wishes to claim the dependent. Sadly, from what I can tell, a large number of tax preparers (and those of the "self-employed" type) just mutter "but that's what the divorce decree said" and move on.

FE