2021 Dependent care credit and disability-- TurboTax's instructions inconsistent with Publication 503

[Michael_Worley]

My wife is able to care for herself, but her pregnancies disabled her and she cannot hold a full-time or part-time job or watch our kids full-time.  So we use child care while I work.  

Publication 503 suggests we would not qualify for the child care deduction:

"Rule for student-spouse or spouse not able to care
for self. Your spouse is treated as having earned income
for any month that he or she is:
1. A full-time student, or
2. Physically or mentally not able to care for himself or
herself. (Your spouse must also live with you for more
than half the year.)"

https://www.irs.gov/pub/irs-pdf/p503.pdf

TurboTax, however, links to a broader definition of disabled when defining the term for the credit:

"

Who is "disabled" for tax purposes?

This is someone with a doctor's certification that says the person's disabling condition has lasted, or will last, at least a year or the rest of their life.

A person is also disabled for tax purposes if he or she can't hold a minimum wage job because he or she mentally or physically can't do so. If you have a job but work only when your condition lets you, you wouldn't be considered disabled, no matter how much money you make.

For example, Diana developed a physical condition this year. She has a certificate from her doctor that says she'll have this condition for the rest of her life. Diana would be disabled for tax purposes."

It seems like these two definitions are inconsistent, and I thought I'd flag it for Turbotax and this seemed like the best way to do so.

[BillM223]

My personal take on this is that Pub 503 is emphasizing the wrong thing when you compare it to the actual Tax Code on Child and Dependent Care. See Section 21 of the US Tax Code.

A "qualifying individual" is..."the spouse of the taxpayer, if the spouse is physically or mentally incapable of caring for himself or herself and who has the same principal place of abode as the taxpayer for more than one-half of such taxable year." ((b)(1)(C).

But this is the person you are paying for care for, i.e., this definition is for the spouse that you are having to pay for care for. That is evidently not your situation.

The purpose of the tax benefits in these expenses is found here: "The term “employment-related expenses” means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the taxpayer:" (b)(2)(A). So if you are spending money in order to be able to work, then these expenses must qualify, even if your spouse can care for herself, but can't care for the kids.

I will admit that (d)(2) does refer to the spouse as a "qualifying individual" (above): "(2) Special rule for spouse who is a student or incapable of caring for himself - In the case of a spouse who is a student or a qualifying individual described in subsection (b)(1)(C), " which implies that the spouse, to meet the earned income exception, would have to be unable to care for him or herself. But flies in the face of the rest of the section.

Please note that the IRS Pubs are not authoritative - for example, you can't quote them as evidence in an audit. It's the Tax Code and court cases and certain IRS Notices that are authoritative. Personally, I would expect that there would be an IRS Ruling (Notice) on this issue, but I haven't found it yet. In the meantime, the TurboTax definition that you refer to seems more appropriate to me because it syncs with the sense of Section 21, if not with Pub 503.

So, I can't give you an authoritative answer, but as I note, if this were me, I would use the broader interpretation and appeal to the sense of Section 21 as embodied in "The term “employment-related expenses” means amounts paid for the following expenses, but only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the taxpayer". If I find an IRS ruling, I'll let you know, and perhaps someone else will chime in.

[Michael_Worley]

Thanks for pointing me to the actual code.  I try to follow the text rather than the purpose, so I'll go against your thoughtful points.  26(d)(2) seems pretty clear.  Thank you for replying though!  Gave me what I needed to wrap this up.

[Michael_Worley]

I ended up going with BillM223's reading for 2023.  I'm not a tax expert; he is.