I have two children in which I pay the daycare expenses but I am only allowed to claim one as a dependent. Where it asks how many children are in daycare, what do I put?

[Carl]

Just wondering why if you have two children, you can only claim one as a dependent. Basically, the number of children you claim for daycare, can not exceed the number of children that qualify as your dependent, and that you actually claim as your dependent.

[MorganQ]

Hi there. I ran into this problem on my taxes, too. I have two children and my ex husband claims one and I claim the other. However, we both pay for childcare for both children. You can say you have two children in daycare and TurboTax will then ask you some follow-up questions to see if you can claim the daycare expenses for both children. It depends on how much they lived with you during the year.

[bds82]

Thank you TurboTaxMorganQ: This is a divorce situation and we each claim one child, although I pay everything else for school, daycare, insurance etc.  It is a joint custody situation but I hold residential custody as everything for the children is listed under my address.  I took my taxes somewhere else to be done last year and I can claim both as I'm supposed to since I pay it all, but I just wasn't sure what to do online here.

[MorganQ]

That sounds very similar to my situation. I enter both my kids in the dependent section (under Personal Info). TurboTax asks the right questions that pertain to a two household situation: which parent is claiming each child and how long they lived with you. The system knows how to handle two parent households (and does it very well, if you ask me!).

If you are claiming the childcare expenes for both kids, TurboTax will let you know if you can claim the expenses for the child you don't claim as a dependent. If you can claim those expenses, make sure your ex isn't also claiming them - your return will get rejected. That happened to me this year. Only one parent with more than 50% custody can claim these expenses.

I'll attach some screenshots below to give you an idea of how it works. It's really easy to follow.

[MorganQ]

Here's how it looks when you enter two kids, but can only claim one as a dependent. Notice how next to Junior's name it says Dependent. And next to Mary's name it says EIC or dependent care credit only. 

When you enter your childcare expenses in the Deductions and Credit section, TurboTax will ask you more questions about how many months "Mary" lived with you to see if you can claim those expenes. 

I hope that helps. Please let me know if you have more questions. I know this stuff is tough. Good luck! 

[MorganQ]

Here are just a few more screenshots of the questions TurboTax asks about your kids if you have a two household situation. They do a great job handling this. 

[Opus 17]

The only parent who can claim the dependent care credit is the parent who had actual physical custody more than half the nights of the year, regardless of what the divorce decree states.  See publication 501 under "special rules for children of divorced or separated parents."  https://www.irs.gov/uac/about-publication-501

It's hard to simplify here, but basically, there are 5 tax benefits of a dependent; the exemption, the child tax credit, the dependent care credit, qualify for EIC, and qualify for head of household.  The parent who has custody more than half the nights of the year automatically gets all of those benefits.  The non-custodial parent can only claim the child tax credit and the exemption, and only if the custodial parent gives them a form 8332 release, or if they have a qualifying divorce order from 2008 or earlier that contains certain specific language.

If you don't have custody more than half the nights of the year, you can't use the dependent care credit or use a dependent care FSA.

In turbotax, you would answer the custody question "how much of the year did you have custody" with "6 months or less", "are you claiming the dependent from a form 8332"--yes.  Turbotax will not allow you to claim the dependent care credit in that case.

If you are the custodial parent of both children, and both children were in care, then you provided care for 2.  You would answer the custody interview by saying you had custody for 7 or more months (more than half the year), and you are giving the other parent a release.  That will remove the exemption and child tax credit from your return but allow you to claim the dependent care credit, head of household, and EIC (if you otherwise qualify.)

If the children lived exactly half the year with each parent (183 nights in 2016; impossible in a non-leap year) then only the parent with the higher income is automatically entitled to all the dependent benefits and the other parent can't claim anything without a waiver, and the same rules for the dependent care credit apply.

If you are not the custodial parent, but you and your ex are putting down on the tax form that you have one dependent each, then you would claim care expense for only that child.  And one of you is committing tax fraud and the other one of you is aiding and abetting tax fraud.  You probably won't get caught, unless one of you blows the whistle, but if you get caught, you can owe back taxes, penalties, and if EIC is involved, you can be automatically barred from EIC for 2 years or more.