Child Dependent Care Credit - Multiple Parents

[KC-CPA]

Good Morning,

I have mutual clients (Parent 1 and Parent 2) who have a child together but no longer are married. Total childcare paid for the year for the child is $13,000. They split the cost, $6,500 each. They alternate claiming the child every other year. I file the tax return for both Parents.

Parent 2 did not claim the child but paid $6,500 for childcare but had $5,000 taken out of her paycheck for dependent care (paycheck (Box 10) of their W-2). The software, Drake, required me to enter the dependent care and complete a 2441 to avoid the $5,000 of dependent care taken out of paycheck being taxable. Form 2441 has a credit of $0, it was only used to offset the box 10 of W-2.

This year Parent 1 claimed the child and paid $6,500 in childcare for the child. I completed the 2441 for him with a credit of $600.00.

I e-filed parent 2’s return in April and it was accepted. Parent 1’s return I just tried to E-File, and it got rejected due to a form 2441 already being filed (only 1, 2441, can be filed for the child’s social security #) however, a credit was not claimed on Parent 2’s it was just used to avoid taxing the pre-tax dependent care (box 10 of W-2). .

Does anyone know a solution, I wish I would have filed Parent 1 before Parent 2, but unfortunately, I did not. At least that would have been more advantageous for Parent 1 but Parent 2 would have to pay taxes on her $5,000 pretax, but she did use it for childcare. I have not had this situation before, any advise or experience would be appreciated. At least I know now for the next time this happens.

Thanks.

[Rapid Robert]

"a credit was not claimed on Parent 2’s it was just used to avoid taxing the pre-tax dependent care (box 10 of W-2)"

The credit and the exclusion are just two different methods for obtaining the same child/dependent care expense tax benefit. You are trying to get a double benefit for a single child, not allowed. If you had filed in reverse order, the same thing would have happened (one parent gets the benefit, the other does not). At least the parent with Box 10 deduction avoids 7.65% FICA tax (which may or may not be a benefit in the long run).

[kathyc2]

The care credit goes to the parent that the child lives with over 1/2 the year, regardless of which parent claims the 2,000 child credit.

[Lion]

When all else fails, read the instructions! NO Double Dipping.

FIRST determine who is the Custodial Parent. If it's NOT Parent 2, then amend his return; e-file (or paper file) Parent 1 correctly. If it IS Parent 2, then his return was correct and you need to fix Parent 1's return before e-filing it.

https://www.irs.gov/instructions/i2441#en_US_2023_publink100077775

"Special rule for children of divorced or separated parents or parents who live apart.

Even if you can't claim your child as a dependent, he or she is treated as your qualifying person if:

• The child was under age 13 or wasn't physically or mentally able to care for themselves;
• 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.

Generally, the custodial parent is the parent with whom the child lived for the greater number of nights in 2023. If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. For details and an exception for a parent who works at night, see Pub. 501.

Generally, the noncustodial parent can't treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents or parents who live apart."

https://www.irs.gov/pub/irs-pdf/p503.pdf

https://www.irs.gov/newsroom/child-and-dependent-care-credit-faqs

https://www.irs.gov/help/ita/am-i-eligible-to-claim-the-child-and-dependent-care-credit

"You cannot claim the credit for a person for whom you are not the custodial parent.

Because you received employer-provided dependent care benefits, but have no qualifying persons or no qualifying expenses, the dependent care benefits you received may be included in your income. Compute the amount to include in your income by completing Parts I and III of Form 2441. Attach the completed form to your tax return."

https://www.irs.gov/taxtopics/tc602

"Children of divorced or separated parents or parents living apart - A noncustodial parent who is claiming a child as a dependent should review the rules under the topic Child of divorced or separated parents or parents living apart in Publication 503, because a child may be treated as the qualifying individual of the custodial parent for the child and dependent care credit, even if the noncustodial parent is entitled to claim the child as a dependent."