Dependent Care Credit Form 2441- incorrect amount

[mikegrenwick]

Hello, when I do my taxes via Turbo Tax I am only reviewing a credit of $1500 for my Dependent Care Credit.

I only made $80000, my spouse is a full time student who made $926 in the year. According to everything I read I should be $4000 credit as my day care expenses are $9000 +.

Do I have to complete the form 2441 by hand and file my taxes manually instead of e-file to get the correct amount? 

[RaifH]

The $1,500 is probably the correct amount of credit in your situation. The Child and Dependent Care Credit is based on expenses that cannot exceed your earned income.

For married couples, it is based on whichever spouse has the lowest income. According to the IRS, a full-time student is treated as having an income of $250 per month that the taxpayer is a student. Since your spouse also had some earned income, for each month they would choose the greater of their earned income for the month or the $250 for being a full-time student.

When you enter the information for the Child and Dependent Care Credit, it will ask how many months your spouse was a full-time student and if there were any months where their earned income exceeded the $250. For example, if your spouse was a full-time student for 9 months and during the summer had a job where they earned all $926 dollars, then the credit would be based on $250 x 9 + $926 = $3,176.

Based on your spouse being a full-time student all year and never having a month where their earned income exceeds $250, the qualifying expenses for your Child and Dependent Care Credit is limited by your spouse's total income of $3,000. At your income level, you receive 50% of the expenses as a credit for the $1,500 that is reported on your tax return. 

[lynch730]

"it will ask how many months your spouse was a full-time student and if there were any months where their earned income exceeded the $250"

I'm currently working on Form 2441 for 2022 (filed in 2023). I am a student full-time, with income exceeding $250 per month. Turbo-Tax is using an earned-income limit of $3000 ($250*12 months).

Where is earned income exceed $250 accounted for in the software? It does not seem to provide the option in the "Dependent Care Credit" section.

[JamesG1]

Have you entered all W-2's for the year?  The software will check your earned income reported on these W-2's when entered.

The Child and Dependent Care Credit specifies the $3,000 or above figure.  See the IRS Instructions (page 5) below:

Your spouse's earned income

For each month or part of a month your spouse was a student or was disabled, he or she is considered to have worked and earned income. His or her earned income for each month is considered to be at least $250 ($500 if you had two or more qualifying persons at any time during 2022).

@lynch730

[lynch730]

I have entered 2 W2's, one for each of us. I checked that each is listed under the correct name. 

Specifically, I clicked from the left-hand pane: Federal->Wages & Income->"edit/add" by Job (W-2). There are two W2's, and under the "name" column, the first has my name and the second, my spouse's name. I've clicked into these (with "edit") and double checked that the names within are correct as well.

Thoughts?

@JamesG1 

[JamesG1]

In my test tax return, at the screen Tell us more about James and Suzie, I selected that Suzie was a FT student. Click Continue.

At the screen Information about Suzie, I entered ‘12 months’.  Click Continue.

At the screen Did Suzie work while a student?, I entered ‘NO’.  Click Continue.

I qualified for the CDC credit.

The software is using the answers to these questions to compute that ‘$250 considered to have worked’ value in the background referred to on page 5 of the IRS Instructions.

Are you able to qualify for the Credit?

@lynch730

[lynch730]

Thanks for your help. 

I cleared my taxes and started over.  I did not get prompted with a "Tell us more about X" nor information about months studied, neither in "Deductions & Credits" nor "My Info" nor "Wages & Income." Some of those pages were populated from previous tax years however. 

When I finish income and get to "Deductions & Credits" and start "Dependent Care Credit," I get the following prompts:

1. Did you pay for child and dependent care in 2022? "We might be able to get you..." clicked yes
2.  Whose care did you pay for? "Choose a name", selected Childs name from pull down, clicked continue
3. How much did you pay for X's care in 2022? "Total dependent care expenses..." Entered amount and clicked continue
4. Here's what we have so far Clicked Done
   
5. Here's what you spent on care providers Clicked + Add a Care Provider
   
6. Let's get some info about your care provider Filled out EIN, address, other queries and clicked Continue
   
7. Before we continue, we thought you should know Clicked Continue
8. Here's what you spent on care providers Clicked Done
9. Did you pay for any 2021 care in 2022? Selected No and Clicked Continue
10. Congrats, you get a tax break!

The amount is $600, which assumes I'm a student with no income, setting the credit to 20% of $3000. I have a W2 included under both parents before this process, with income exceeding the amount spent on childcare. Neither spouse received childcare benefits through the workplace - this appears to be related to my status as a student.  

[RobertB4444]

Removing your status as a full-time student will allow you to take the full credit.  It is not necessary to indicate that you are a full time student when you have W2 income as well.

@lynch730

[lynch730]

Where would this status normally be entered? The only place I see it mentioned is in filing for the Lifetime Learning Credit, but deleting it doesn't change the Dependent Care Credit. I don't see it mentioned in "My Info" or "Federal Wages & Income"

And would this mean I cannot also obtain the Lifetime Learning Credit?

[lynch730]

Okay, so there was no prompt for student status in My Info, until I set my occupation from "Research Assistant" to "Student" then another page appeared that asked whether I was a "Full-time" student. I tried selecting no, but this didn't change the CDC credit, even after deleting and submitting the form for it. 

Even if it did work, I would like to be able to apply for both the LL credit and the CDC credit, which from my reading of the IRS rules, I should be eligible for. 

This definitely seems like a bug in the software. 

[BillM223]

There is not a bug in the software. Please read...

1. "Where would this status normally be entered?" If you entered the dependent care credit interview before you entered both W-2s, then TurboTax would have presented you with a screen asking if either of you were disabled or a full-tine student. It would ask this because it saw that one or both of you had no earned income (the W-2s).

To remove this, try going back to the child and dependent care interview (under Deductions & Credits) to see if that is the first screen  - if so, then uncheck the appropriate boxes. Otherwise you may have to delete the form 2441 (see instructions below).

2. You can get the Lifetime Learning Credit without regard to entries in the child and dependent care interview.

***to remove a form***

*** Desktop***

1. go to View (at the top), choose Forms, and select the desired form (2441). Note the Delete Form button at the bottom of the screen.

*** Online ***

1. go to Tax Tools (on the left), and navigate to Tools->Delete a form

2. delete form(s) 2441 

3. go back and redo the dependent care interview

[lynch730]

I deleted 2441 as you described, and made sure both W2's were finalized before starting Deductions and Credits. I went back through the Tax Credits and got the same incorrect result. 

I can confirm there was no prompt in Deductions and Credits asking about student status. 

Please advise next steps. 

[BillM223]

Please give us the following:

1. The amount in box 10 of your W-2.

2. The number of dependents you listed for care.

3. Are either of you taking the Foreign Earned Income Exclusion?

4. Are you filing married separate?

5. What are the ages of the qualifying person(s) that you paid care for?

6. Were some of the 2022 expenses paid in 2021 or before?

7. Did you have an FSA with your employer?

8. Did your employer provide child care? If so, what was the value of this care for your child?

9. Are you are to provide the name, address, and tax ID of each organization providing care?

10. Did you forfeit any of your FSA money or carry it over to next year?

There are even more questions but what you might do is run the IRS Interactive Assistant online to enter your data and see if you qualify for the credit. If some of the questions don't make sense, come back and we'll tell you about it.

[lynch730]

Thanks for your help.

All the questions in the IRS Interactive Assistant made sense, and we do qualify for up to $3k in credits. 

1. The amount in box 10 of your W-2.  Zero for both parents

2. The number of dependents you listed for care.  One

3. Are either of you taking the Foreign Earned Income Exclusion? No

4. Are you filing married separate? No, filing jointly

5. What are the ages of the qualifying person(s) that you paid care for? 0 years old

6. Were some of the 2022 expenses paid in 2021 or before? No

7. Did you have an FSA with your employer? No

8. Did your employer provide child care? If so, what was the value of this care for your child? No

9. Are you are to provide the name, address, and tax ID of each organization providing care? Yes

10. Did you forfeit any of your FSA money or carry it over to next year? No

[BillM223]

Did you list your spouse as a full-time student for all 12 months? If so, your spouse's earned income is assumed to be $3,000 (Since I assume that the actual W-2 of $925 is ignored in this case). 

On line 6 of the 2441, you should enter the smaller of the care expenses (in your case, no more than $3,000), your earned income ($80,000), and your spouse's earned income ($3,000). 

Line 8 should be 35% (from the table on the form).

Line 9 should be $1,050 for your actual credit.

Did I describe your situation accurately? 

"we do qualify for up to $3k in credits. " I don't see how the Interactive Assistant could have said this, with the information as I understand it. Let me know if I got something wrong.