Form 2441, Part III, Line 18

Forum|Forum|3 months ago
April 8, 2026
2 replies
417 views

Hi,

I am certain that the turbotax Form 2441 calculations are incorrect.

We are married filing jointly, with my earned income being $2,000 and my wife $60,000 (numbers are simplified for ease of calculation). We have one qualifying dependent so maximum we can claim is $3,000.

I received dependent care benefits of $5,000 from employer in the form of reimbursement voucher, reported on my W-2 box 10.

As I understand, the excess of $3,000 over my earned income is taxable (Form 2441, Part III, Line 26), and the $2,000 (Form 2441, Part III, Line 25) can be used for dependent care credit calculations, which results in $1,000 in Form 2441, Part II, Line 6.

The part which I believe turbotax (and some other software I tested, though with minimal customer support) incorrectly calculates is Form 2441, Part III, Line 18, where it somehow shows my earned income as $0 not $2,000. IRS instructions do mention "for purposes of lines 18 and 19, earned income doesn’t include any dependent care benefits shown on line 12," but that does not mean we subtract the $5,000 (or any amount) from my earned income of $2,000. The consequences of this incorrect calculation is that turbotax deems the entire $5,000 taxable benefits (Form 2441, Part III, Line 26), and my earned income of $2,000 will become the basis for dependent care credit calculations (Form 2441, Part II, Line 6). Although I would receive double the amount of dependent care credit this way, that additional $2,000 taxable income actually increases my final tax liability.

I hope there is somehow a way to fix this in turbotax online.

Thank you so much.

Ask the Experts - Finish - April 2026

RogerD1

Level 6

I worked up a mock return using the information you gave in your example. Form 2441 ended up showing both the $60,000 wages and the $2,000 wages on line 18 and 19 in Part III. It ended up with a $200 credit for the Child and Dependent Care credit and $3000 of taxable income from the employer dependent care benefits reported on line 1e of Form 1040.

I'll share the entries I put in for the Child and Dependent Care credit and you can check in they agree with those that you have:

Let's get some details to help maximize your credit - none of these apply
Summary of dependent care expenses - $5,000 care expenses for the dependent
Your expenses for care providers - $5000
Carryovers from prior year used in 2025 - $0
Let us know about these uncommon situations - both marked No
Congrats! You qualify for the credit. Amount of $200 for the credit

If any of your information differs from what I entered for carryovers or the uncommon situations, that will change the outcome.

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dnschangAuthor

Level 2

Your result is exactly what I thought I would be getting. Unfortunately, I entered exactly as you did but still got the same incorrect result. I deleted my W-2 and 2441 and added them back again. Still doesn't work.

Any thoughts on why?

Thank you.

RobertB4444

Level 15

Please describe the numbers on your W2 for me. You should have $2000 in box 1 and 3 and 5. You should have $5000 in box 10. Is this correct?

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JamesG1

Level 15

Similar to @RogerD1 above, I compute a $200 credit for child and dependent care expenses in TurboTax Desktop Premier. I included a 1065 K-1 and W-2 wage numbers similar to @RogerD1 above.

In my example, the 1065 K-1 loss does not affect line 18 earned income but that may be because the loss was credited to the other spouse. The reason may be because of how the 1065 K-1 was entered on this end versus how the 1065 K-1 was entered at your end.

@dnschang

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dnschangAuthor

Level 2

I don't know what to say but this actually worked. Attributing the K-1 to my spouse fixed the numbers for me, but I think as you said, it is a superficial fix because the loss is probably applied to my spouse's earned income instead, which is way over the dependent care benefit so the issue is masked.

The software has some real bugs with this. Ironically, when I attribute the K-1 to both of us, I received max credit of $3000 x 2 = $600, which makes absolutely no sense.

See the turbotax AI/automated explanation below for each option I select:

Me (correct designation, incorrect result):

"With one qualifying person, the maximum expenses you can use is $3,000. You received $5,000 in Dependent Care Benefits from your employer, which reduces your eligible expenses to $0, but the IRS allows you to use the lesser of your earned income or $3,000 for the credit calculation. Since your earned income is $1,899, only that amount counts. Your credit rate is 20%, so your final credit is $380."

Spouse (incorrect designation, correct result):

"With one qualifying child, the maximum expenses you can use for the credit is $3,000. Because you received $5,000 in pre-tax Dependent Care Benefits from your employer, your eligible expenses are reduced to $1,182. Your credit rate is 20%, so your credit is $236 ($1,182 × 20%)."

Both of us (incorrect designation, incorrect result):

"With one qualifying child, the maximum expenses you can use for the credit is $3,000. You received $5,000 in Dependent Care Benefits from your employer, so your eligible expenses are reduced to $3,000. Your credit rate is 20%, so your credit is $600."

Any advice on how to proceed? Is this something you can report higher up?

Thank you so much.

RobertB4444

Level 15

Is the -$4919 amount reported on your 1065 K-1 in box 14 as well as box 1? Because that would mean that the income is considered self-employment income and the partnership has listed you as an active participant in earning that income. In which case your actual earned income for the year is -$3101 and you would not qualify for the child and dependent care credit.

If you are not an active participant in that partnership you should request a corrected 1065 K-1 that lists you as a passive individual instead and would keep you from having to pay self-employment tax on earnings from the partnership.

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