Why did this taxpayer not get the Child and Dependent Care Credit (2441)?
- Make sure that the amounts paid to the provider are entered on the 2441 screen and on screen 2 (Dependents). These amounts must match.
- The taxpayer must have earned income.
- Earned income includes wages, salaries, tips, and other taxable employee compensation, and net earnings from self-employment. A net loss from self-employment reduces earned income. Publication 503, Child and Dependent Care Expenses.
- There is an exception for a disabled person or a person who is a student. See Pub. 503 and the Instructions for Form 2441 for information on the amounts to enter on the 2441 screen.
- If the Filing Status is Married Filing Joint (MFJ), both the Taxpayer and Spouse must have earned income.
- If Filing Status is 3 - Married Filing Separate (MFS), the taxpayer does not qualify for the credit unless certain conditions are met involving legal separation and spouses living apart from each other (see "Joint Return Test" in Pub. 503).
- What is the tax liability shown on line 16 of the 1040 (line 12b in 2019, line 11 in 2018 or line 44 in 2017 and prior)? Child Care Credit is limited to this amount. If the tax liability is $0 then the Child Care Credit is $0. The Child and Dependent Care Credit can take the tax liability to zero but that's all it can do; it's a non-refundable credit.
- Are employer-provided Dependent Care Benefits present on the W-2, Line 10? If present, page 2 of the 2441 will show the calculation for taxable benefits. Only dependent care amounts in excess of the Dependent Care Benefits qualify for the credit. If Dependent Care Benefits are greater than amounts paid for child care the excess is shown as taxable income on the 1040, Line 1 (DCB is printed in the margin to the left of line 1).
Note: Dependent Care Benefits must also be entered on Screen 2 (Dependents) for each dependent involved.