Babysitting Allowance

[Snaggletooth]

Taxpayer has a W-2 from an employer showing $2000 on line 10 "Dependent Care Allowance". He and his wife spent $4500 to church for babysitting.

Wife did not work and has no earned income, so no credit for child care is allowed.

However, they DID spend more than the $2000 on line 10. I would think the extra money they spent would at least bail them out of being taxed on the $2000.

Is my software wrong, or am I wrong??

[Lion]

Work through Form 2441 and its instructions.

[FEDUKE404]

Agree with Lion and Form 2441 relevance. Lines 5 and 6 are of particular importance. I don't think the existence of "babysitting" expenses carries much relevance.
Interesting how employer established DCA funding to include no wage income (assumed neither disabled nor student) for spouse.
I think taxpayer will have $2k of extra "wage" income showing up on the 1040.

[Rapid Robert]

"Is my software wrong, or am I wrong??"

You.

I've seen this more than once. There is nothing wrong with the employee selecting Box 10 withholding during their annual Sec. 125 plan enrollment, even if they know they will not qualify for Dependent Care credit/exclusion. It is a loophole in the law. Yes, the Box 10 amount gets added back to wage income, but meanwhile it was not subject to FICA tax and never will be.

[Snaggletooth]

Thank you to all who have responded.

No one says tax law is fair.

[FEDUKE404]

Thank you to all who have responded.

No one says tax law is fair.

"Fairness" went out the door with the arrival of such things as NIIT and IRMAA.

[Rapid Robert]

""Fairness" went out the door with the arrival of such things as NIIT and IRMAA.."

So you are saying progressive income taxation[0] is unfair. I suppose a lot of people share that belief.

[0]"The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate" - Wikipedia

[FEDUKE404]

""Fairness" went out the door with the arrival of such things as NIIT and IRMAA.."

So you are saying progressive income taxation[0] is unfair. I suppose a lot of people share that belief.

[0]"The term progressive refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate" - Wikipedia

I can live with "progressive income taxation" rates. . .things have been that way for a long time and are, in fact, less confiscatory than in past years.
BUT i have problems with the sneaky ways the government adds to the "tax bill" for individuals with higher incomes (and soon to be merely "assets" ??).
Form 8960 is an add-on Medicare tax based on investment income, and IRMAA forces people (and their spouse) to pay MULTIPLES of their monthly Medicare B/D premiums just because of their higher income.
Maybe I'm missing the point, but I think folks in NIIT and IRMAA situations are essentially paying costs for Medicare *THREE* times.