IRS Letter: Dependent Day Care FSA

[Spouse1234]

I just received a letter from IRS saying I owe money related to unreported Dependent Day Care Benefits in 2017. It says my company reported $5000. I did have a Dependent Day Care deduction.Looking at my saved tax record PDF file, it shows Form 2441 that I paid $9853. What should I do to resolve this?

[Opus 17]

What is the amount on line 11 of form 2441?  If you paid for care for one qualifying child, it should be zero.  If you paid for care for 2 or more qualifying children, it should be between $200 and $350, depending on your income.  

If line 11 of form 2441 is more than it should be, what is entered on line 12?

Do you have a copy of your 2017 form W-2?  Does it have the $5000 in box 10?

[Lisa995]

You need to look at your W2, Box 10.

[Spouse1234]

Thanks for the quick reply. In 2017, I had two children, one of whom was born that year. I only paid daycare expenses for one of them. I paid $9853, shown in 2(c) for that child, $0 for the other. Line 3 has $6000, though I wonder if it should be $3000 since I only paid for daycare for one child? Line 6 is then $6,000 x Line 8 which is 0.2 (highest income) so Line 9 and 11 are $1200. There is no Line 12 - remember, this is 2017 taxes. My W-2 from 2017 has $5000 in box 10. I didn't enter any of this in TurboTax manually, it was all through the interivew, so not sure what went wrong.

[Spouse1234]

I reinstalled TurboTax 2017 and revisited the interview on You and Your Family for Deductions, and I answered everything correctly. However, the 2441 says a Part III should have been submitted since I received dependent care benefits, but TurboTax doesn't seem to have created one.

[Spouse1234]

I SEE THE MISTAKE: Forgot to enter Box on my W-2. So now what should I do? Fill it out, let it generate a new 2441, and then submit it?

[Opus 17]

Read the IRS letter and follow the instructions.  They might want a new form 2441, or an entire tax return, or they might just want a check and they will adjust your file for you.  Do whatever they tell you to do.

If they are billing you for $1000 plus interest, it is probably ok to just pay it.  If you want to double-check the amount you owe, you would prepare an Amended Return with the correct information (update your W-2, all the other changes should happen automatically).  If the amount due on the amended return is the same as the IRS notice, then just do whatever they tell you (pay the bill, send form 2441 only, or whatever).  If the amount due is different that what the IRS calculated, send the amended return, plus a check for what you think you owe, plus a letter of explanation, to the IRS office that sent the letter (not the usual; amending address).

If your state has a dependent care credit, you may need to send them an amended return and a payment, since changing box 10 and form 2441 may change your eligibility for the state credit as well.

[Lisa995]

On some W2s, Box 10 sits off by itself, it's easy to miss.

[Opus 17]

Your credit should have been $200, not $1200, and part 3 should have been filled out.  (Since you had 2 children, you are allowed to use $6000 on line 3, even though you only paid for one of the children.)

Normally, Turbotax will pick up the entry in your W-2 box 10, and automatically complete part 3.  I suspect you mis-entered your W-2, that's the only way this could happen unless you had a one in a million computer glitch.

The IRS should be billing you for $1000 I think, plus late fees and interest.  You always owe your correct tax, but Turbotax guarantees to pay the penalty and interest if the error was caused by the program (and not by your error).

The claim form is linked below.  You submit a claim and a copy of your tax file and they will review it.

https://ttlc.intuit.com/replies/4202723