ABLEnow account used to pay for dependent care is an eligible dependent care expense?

[user17701421036]

If I pay for Dependent Care for my 11 year old son, who has special needs, with his ABLEnow account, can I claim the expense as dependent care when I file my taxes?

[Vanessa A · Accepted solution]

No.  That would be considered double dipping.  

Your ABLE now account is an account that belongs to the child, not the parent.  It is also a tax free distribution when used for qualifying expenses such as dependent care.  Since you are not paying taxes on the distribution that you are using to pay the dependent care expenses, you cannot claim the dependent care credit when you file your taxes unless you paid out more than the amount you took out of the ABLE now account.  The excess could be used to claim the credit.

For example.

Your total dependent care costs were $6,000

You took out $5,000 from the ABLE now account to pay for the dependent care

You paid cash out of pocket with after tax money for the remaining $1,000.

You would be able to use the $1,000 for the Dependent Care Credit. 

One thing to remember, is if the ABLE now account pays for more than half of your sons living expenses, such as housing, food, and medical, that would be considered him paying for more than half of his own support.  This would then interfere with your ability to claim your son as a dependent as one of the criteria for claiming a qualifying child is that they cannot pay for more than half of their own support.

 The following criteria must be met to claim someone as a qualifying child:

• Your child (including adopted and foster children), your sibling, or a descendent of any of them.
• Age 18 or younger at the end of the tax year OR under 24 (and younger than you and your spouse) if they are a full-time student or any age if they are totally and permanently disabled
• Lived with you for more than 6 months during the tax year
• They did not provide more than half of their own support (social security does not count)
• They did not file a joint return, unless it was to claim a refund

To claim someone as a Qualifying Relative, they must be:

• Your child ( including step children, adoptive children and foster children) or a descendent of them
• Your sibling (including half siblings) or a child of your sibling or a sibling-in-law
• Your parent or grandparents, including step parents and in laws
• Any other person that lived with you for the entire tax year
• Not a qualifying child of another taxpayer
• Someone that you provided over half of their support for during the tax year
• Has less than $5,200 in income (not counting social security)

[user17701421036]

Thank you Vanessa for the thorough reply.

I understand that my son is the owner of the ABLEnow account.  That makes it tricky, maybe.

However, can’t the ABLEnow account be treated analogously to a Roth account, in which one can withdraw one’s contributions at any time for any reason without penalty (just not earnings)?   The contributions to an ABLEnow account are not pre-tax.  They are post-tax contributions.   If I make the contributions to the ABLEnow account post-tax, can’t I use the contributions for his dependent care as a dependent care tax credit, up to my total contributions over the years?

[DianeW777]

No. Regardless of how it is funded, your son owns the account so any funds used for his support would be considered his own funds. This means only funds you used from your own funds, outside this ABLEnow account could be used if your son qualifies as your dependent.

@user17701421036