Why is Dependent Care Credit not calculating based on new 2021 formula? For 2 kids, costs over $20,000 and income under $100,000 credit should be $8,000 not $2,000.

[katieloves2smile]

The new Dependent Care tax credit allows up to $16,000 to be claimed for 2 kids, with a 50% credit of $8,000 for couples making under $125,000 but when entered in the system it brings up only a credit just above $2,000. The system is clearly calculating under the 2020 formula and not 2021.

[BillM223 · Accepted solution]

My test shows TurboTax calculating the correct $8,000 on $20,000 of expenses for 2 kids.

So let me ask a series of questions:

1. Are you using TurboTax Online or the CD/download version?

2. Which product are you using (Deluxe, Premier, Home & Business, or Self-Employed)?

3. Do either of you have an entry in box 10 on either W-2? This would indicate that you are using a Dependent Care FSA, which sharply changes the credit calculation.

Please let us know.

[Critter-3]

Also did you enter income for both of you in the program yet? 

[katieloves2smile]

Using Turbo online, Deluxe. Yes incomes entered for both of us. Nothing in box 10 for either of us. 

[katieloves2smile]

I think I figured it out. One W2 is too low causing it to look like the person didn't work all year. We have 4 W2s for the year but only 2 are loaded so far. When adjusting the income it corrects the dependent care amount to reflect the $8,000. Wish the system would have told me how they calculated versus just spitting out a number. 

[DanielV01]

@katieloves2smile  Often times, when you navigate onto the screen that shows how much is calculated for the credit, there is a link that explains how it was calculated.  If there isn't, the full information is provided with the worksheets that are included with your tax return, which you can review also.  And we're happy to answer any additional questions to help you understand what is going on on your return.

[Critter-3]

@katieloves2smile 

FYI ... the  program is set up to be completed in an income first and deductions later interview path  ... so when you don't complete the return in the order the program is laid out the bottom line will not be correct.