The IRS instructions for the W-2 have not been helpful. To me, the point of Part III on the 2441 is to figure out how much you received in Dependent Care benefits because any qualified expenses spent by you over the $8,000/$16,000 should be allowed to enter the calculation for the Dependent Care credit. With $10,500 in box 10, if you have only one child (so, $8,000), you would have nothing left on line 29 (2441) to be applied to the credit, whereas in fact, this $10,500 overstates your benefit by $3,562.04.
This suggests that the amount in box 10 should be $10,500 less the amount that was added to box 1 (Wages) ($3,562.04). However, when I look at the instructions for box 10 in the W-2 Instructions, it does not cover your situation.
Please understand that the W-2 Instructions are instructions for your employer on how to complete your W-2; the instructions for form 2441 are instructions for you, the taxpayer, on how to complete the 2441. However, you don't seem to be able to follow the 2441 instructions unless they reduce the amount in box 10.
May I assume that when you did the return without the modification, that you had no Dependent Care credit, yet when you make the modification, that you now get a modest Dependent Care credit? If this is true, then this is a matter of some importance to you.
I would first go back to your payroll people and talk to the most experienced accountant there (if any). Ask them if they would issue you a corrected W-2 with the box 10 amount reduced by $3,562.04. If they won't, then when you enter the W-2 and you change the amount in box 10, you run the risk of the IRS writing you a letter, and you will have to be prepared to defend what you did.
I would not modify the box 10 amount (well, line 12) in Forms mode, because often a modification in Forms mode prevents you from e-filing. Given how backed-up the IRS is with paper returns (some 6 million still remain to be processed from last year), sending in a paper-return means that it will be months and months before your refund comes to you (if any).
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