Dependent care FSA expense Not Excluded from AGI

[chenfei78]

For 2021, I have W-2 earned income and my spouse is working broad with foreign earned income.  He only has foreign earned income, which qualifies for foreign income exclusion for his entire earning.  I put in $3000 in FSA child dependent care and used it all.  But Turbo Tax Form 2441 Line 19 takes the earned income amount after federal income exclusion on the spouse, which leaves line 20 the smallest of line 17, 18, and 19 to be zero.  It doesn't seem to be right.  I don't believe there is limitation on dependent care FSA limitation with income threshold.  The tax law also doesn't provide limitation for dependent care benefit if your spouse doesn't have earned income.  I think it's a Turbo tax bug.

I tried to override box 19 amount, but it won't let me e-file.

[DaveF1006]

Please read IRS publication 503 in the section under You must have Earned Income. It specifically states that foreign earned income you exclude from income is not included for earned income purposes.

[chenfei78]

Find this under Publication 503 for childcare credit:

You Must Have Earned Income

To claim the credit, you (and your spouse if filing jointly) must have earned income during the year.

Earned income.

 

Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. A net loss from self-employment reduces earned income. Earned income also includes strike benefits and any disability pay you report as wages.

Generally, only taxable compensation is included. For example, foreign earned income you exclude from income isn't included. However, you can elect to include nontaxable combat pay in earned income. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. (In other words, if one of you makes the election, the other one can also make it but doesn't have to.) Including this income will give you a larger credit only if your (or your spouse's) other earned income is less than the amount entered on line 3 of Form 2441. You should figure your credit both ways and make the election if it gives you a greater tax benefit.

So I guess the same would apply for both the child care credit and whether the childcare care expense can be excluded from income.

Thank you!

[DaveF1006]

You should be eligible for the child care credit even if you are not eligible for the dependent care credit.  

Please read the following link and view the section entitled Top 7 Requirements for the 2021 Child Tax Credit. If you qualify on those 7 requirements, you qualify for the Child Tax Credit.