I am confused about the Dependent Care Credit. Both my spouse and I work, and we pay childcare for one of our 2 children, but it is still stating that we do not qualify.

[kaylarvinson]

I thought this was given to working parents. Did I miss something? I have documents from daycare with tax information, but am not able to enter it. What have I missed?

[xmasbaby0]

CHILD AND DEPENDENT CARE CREDIT

You will not get the childcare credit until (unless) you enter income earned from working.   The credit does not work unless you enter your income first.   If you are filing a joint return you must show income for both spouses, or show that one or both of you was a student or disabled.   If you have self-employment income and show a loss you will not get the childcare credit.  You will not get the credit if you are filing married filing separately.  

If you have entered all of your income and you have entered your dependent(s) then work on the childcare credit by entering the Tax ID or Social Security number of your childcare provider and enter the amount you paid for the childcare.

One of the most common mistakes that messes up the childcare credit for people is listing all of the earned income under only one name on a joint return.  Make very sure that your incomes are listed under each of your names.  It’s pretty easy to check.  Go to the Income section, and click “update” on Wages and Salary.  That will take you to the W-2 Summary.  Do you see income listed under both of your names? 

 The person receiving the care had to be 12 or under or qualified as mentally or physically disabled. To claim the childcare credit you need to be filing as Head of Household or Married Filing Jointly. (NOT married filing separately)

 If your child was born in 2022 make sure you say the child lived with you all year. The credit is a percentage of your expenses based on your AGI (the higher the income, the lower the percentage)  You must provide the Social Security number for each child you are claiming, and the Social Security number or Tax ID for each care provider. 

In the case of divorced or never-married parents—only the custodial parent can use the childcare credit.

And remember that the childcare credit is a NON-refundable credit.  It can reduce your tax owed down to zero, but it is not added to your refund.

https://ttlc.intuit.com/questions/1900643-what-is-the-child-and-dependent-care-credit

Federal>Deductions and Credits>You and Your Family>Child and Dependent Care Credit

[DawnC]

You have to go all the way through that section and enter all the care providers' information as well as the amounts.   Also, make sure you have the dependents' information entered correctly.   Their age and dependent status will affect the credit.    You can search for Form 2441 to be taken to that section to enter the required information.  

To qualify for this credit, you must meet all of these criteria:

• You (and your spouse, if filing jointly) must have earned income.
  • The earned income requirement for one spouse is waived if they were a full-time student or disabled (if they lived with the other spouse for more than 6 months in 2023).
• You paid caregiving expenses so that you (and your spouse, if filing jointly) could work or look for work.
  • The work/look-for work requirement for one spouse is waived if they were a full-time student or disabled (if they lived with the other spouse for more than 6 months in 2023).
• You paid a caregiver to care for a Qualifying Person. The caregiver can't be:
  • Your spouse.
  • Your dependent.
  • Your child if they were under 19 on the last day of 2023, even if not your dependent.
  • The parent of the Qualifying Person, if the Qualifying Person is your child under the age of 13 during 2023.
• Your filing status is not Married Filing Separately (except under certain circumstances).
• You can provide the care provider's name, address, and their SSN, ITIN, or EIN on your return (unless it's a tax-exempt organization).

[aturisch]

Hi there,

We have a situation where one spouse worked full year, while the other looked for work (it's a niche field).  As a result, one spouse had W2 income, the other had 1099G unemployment benefit. If I'm reading IRS rules correctly, we should still be eligible for the credit. How can I reflect "looked for work" in TurboTax for the purpose of Childcare Credit?  If this is not possible in TT, how would you recommend to proceed here?  Thank you.

[CatinaT1]

If your spouse had no earned income at all during the tax year, you will not be eligible for the credit. While the credit does allow you to include the cost for care expense while you "look for work", you still must have earned income. In other words, care expense while you look for work is an eligible expense, but looking for work, does not qualify you for the credit.

To claim the credit, you (and your spouse if filing jointly) must have earned income during the year. Your earned income is the salaries, wages, tips, professional fees, and other amounts you receive as pay for work. Unemployment is not earned income. This information is found in Publication 503, Child and Dependent Care Expenses.

The IRS has a great interactive assistant to determine your eligibility. You can find it here: Am I eligible to claim the child and dependent care credit?

[biruktammru]

Do both our incomes need to come from W2 sources in order to qualify for the child and dependent care credit?  One of us has income from self-employment and 1099, and the other one from a W2.   It states that we do not qualify for the credit, so I'm curious if this is the reason?

[KrisD15]

No, you do not both need to be W-2 employees however the income for Self-Employed Taxpayers is the NET income, so the profit shown on the Schedule C. 

If you have not yet entered the self-employment income, the program may say you are ineligible and update once the income is reported. 

[netska]

Similar situation; I have a W-2 but my husband has ordinary income from a partnership (K-1).  He is an active participant in the partnership and its his full time job. He does not get a salary but is rather paid via distributions.  Is that the problem?  Because they are not counting that as "earned income"?

[JamesG1]

That is likely the case,  See IRS form 2441 Instructions, here, page 1, which states:

You (and your spouse if filing jointly) must have earned income to take the credit or exclude dependent care benefits from your income.

Earned income for figuring the Child and Dependent Care Credit is defined on page 4 under Lines 4 and 5.

@netska