Why is Turbotax telling me that we dont qualify for Child and Dependent Care, when we have a substantial bill this year? What would cause us to be disqualified?

[vitosals]

My wife and I have earned income, over $10,000 in qualifying expenses, have a federal tax obligation, and make less than the AGI cut-off.  TurboTax says we do not qualify and provides no explanation or help other than to try to push us to their premium service.  After 8 years, I am done using TurboTax.  The software is glitchy and customer service is poor.  

[JohnB5677]

I suggest you look at your tax return and see if you can identify something.

1. On the menu bar on the left that shows.
   1. My Info
   2. Federal
   3. State
   4. Review
   5. File
2. Select Tax Tools
3. On the drop-down select Tools
4. On the popup menu
5. Select View Tax Summary
6. On the left sidebar
7. Select Preview my 1040.

Line 24 is Total Tax

Lines 27,28,29 are credits that have already been applied.

If your Total Tax minus the other credits does not still result in a tax owed, you will not get the credit.

For 2022, the credit for child and dependent care expenses is nonrefundable and you may claim the credit on qualifying employment-related expenses of up to $3,000 if you had one qualifying person, or $6,000 if you had two or more qualifying persons. The maximum credit is 35% of your employment-related expenses.

Also see: Publication 503 (2022), Child and Dependent Care Expenses  and   The Ins and Outs of the Child and Dependent Care Tax Credit

@vitosals 

[jarealio]

I have the same exact problem - "It turns out you don't qualify for this credit," despite meeting every requirement. Filing jointly, 2 working parents, each with income reported, way below AGI cap. ~$5000 in qualifying dependent care expenses. Care provider listed, including EIN. Non-zero tax liability after accounting for other credits. Dependent info all correctly entered and qualify for child tax credit. Checked 1040 Preview to confirm total tax > $0, child tax credit correctly applied, but no Dependent Care credit listed. I have entered and re-entered and always get the same unhelpful end result. This is baffling.

[Critter-3]

CHILD AND DEPENDENT CARE CREDIT

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?

Did either of you have an FSA account ?  Is there an amount in box 10 on any W-2? 

A few other things—the childcare credit is not a refund.  It can reduce your taxes owed.  If you were self-employed, but showed a loss, you will not receive the credit.

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.  You can claim a maximum of $6000 in expenses for 2 or more dependents.

[jarealio]

Yes, we have two W-2's listed, one for each of our names.

I do have an FSA account, but that only covers a portion of my dependent care expenses. I have ~$5000 of dependent care expenses in addition to what was covered through the FSA. I entered the full amount of dependent care expense, ~$10,000. Somewhere behind the scenes the system presumably subtracts the $5000 for FSA from my W2. That leaves ~$5000 still qualifying.

All else is not applicable. We have tax liability. We have no self-employment loss. My only dependent is much younger than 13. Married, filing jointly. Child was born before 2022 and I checked the box that they lived in this home all year. SSN was provided for child. EIN was provided for dependent care provider. "It turns out you don't qualify for this credit." It would be extremely helpful for TurboTax to indicate why. Otherwise, this just seems to be an error that I cannot resolve.

[xmasbaby0]

@jarealio Sorry---you misunderstood the rules...and the rules changed from 2021 returns to 2022---so no surprise there.   You get a total of $6000 toward the credit IF YOU HAVE TWO CHILDREN.  You got $5000 of "pre-tax" money by paying from your FSA account.  You do not get another $5000 of childcare credit for childcare.   If you only have one child you already got the $3000 of untaxed money for childcare.    If you have two kids, you get another $1000 of the credit---that's it.  The childcare credit can only reduce your tax owed----it is not refundable.

[vitosals]

We are having the exact same issue and none of the glitch-fixes have worked.  We have a tax obligation, qualifying expenses, two parents with earned income, make less than the AGI cap, etc.  TurboTax does not want to provide relevant support as to why we purportedly do not qualify unless we upgrade to a premium service.  Honestly, unless they shed light on the issue, I am done using TurboTax.  The customer service is bad, the software is unhelpful, and I would rather support a tax professional in my area and talk to a human then pay for their premium service.  

[jarealio]

@xmasbaby0 Thank you, I think that does explain it. I see contradictory guidance on that point on various websites, some which indicate that the dependent care credit for 1 child is available for up to $3,000 above any amount covered by the FSA. But I found guidance from the FSA that is more clear and consistent with what you stated. For 1 child, the only way to claim any dependent care credit is if you paid less than $3,000 into a dependent care FSA.

[vitosals]

@jarealio take a look at examples 1 and 2 under p. 13 "Reduced Dollar Limit" of publication 503.  I think I made the same mistake.  I max out my FSA for dependent care ($5,000) and the IRS considers that to use up all of the $3,000 in possible tax credit that we would get for one child.  I have about $10k in expenses for 2022 so I thought that I could use the other $5k not funded through an FSA for this credit, but it seems like I cannot. 

I wonder whether it would make financial sense for some families who could earn the maximum under the tax credit, who have a tax liability over $3,000, to forego an FSA.  $3,000 credit is definitely better than roughly $1500 in tax savings done through FSA, but I guess the difficult question is predicting whether you will have a tax liability greater than your FSA.  

[xmasbaby0]

@jarealio The rules changed drastically for this credit from 2021 returns to 2022 returns----so you are among many who were caught unaware until you had already put that money into an account expecting to take advantage of it.  And..for 2021 child care credit was refundable... for 2022 it is not.

[jarealio]

@vitosals I think for the Dependent Care Credit, you would only receive 20%-35% (depending on your AGI) of the expenses up to $3000 for 1 dependent. See page 13 (Amount of Credit) of the guidance you referenced. So I think for most situations, the FSA would provide better savings, but it could depend on your specific circumstances.

[bmpeterson7]

Box 10 in my W-2 indicates $5000 but that was money I elected to take out of my paycheck and put into a dependent care FSA throughout the year; it was not additional dependent care support from my employer. 

I'm confused as to why my dependent care tax credit is reduced/eliminated because I put money in an FSA. 

1)  Should I check with my employer as to whether it's an error on my W2? and 

2) If it's not an error, and contributing to a dependent care FSA reduces/eliminates my dependent care tax credit, is it better to not have a dependent care FSA?

[Critter-3]

This is not a program error ... on the form 2441 the FIRST $3000 paid for child care is all that can be used for the credit and since you had set aside $5000 for child care pre tax you cannot also take a credit on the same money.  Read the form 2441 to see exactly how this is handled.

[MayaD]

The total expenses that you may use to calculate the credit may not be more than $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals). 

If you received dependent care benefits ( amount reported in box 10) that you exclude or deduct from your income, you must subtract the amount of those benefits from the dollar limit that applies to you.

You can use a dependent care FSA with the dependent care tax credit. However, the same dollars can’t count for both benefits.

The amount in box 10 reduced your taxable income so it can't be used again to receive the credit. 

If your employer offers a dependent care FSA, you will benefit by contributing to it. You’ll reduce your taxable income and pay for dependent care simultaneously. Reducing your taxes up front is usually more beneficial because the dependent care tax credit lowers your taxes due but doesn’t increase your refund. 

Plus, dependent care will probably cost you more than $5,000 annually. So, you can claim out-of-pocket expenses for your dependent care tax credit, taking advantage of both tools.

Child and dependent care credit

Instructions for Form 2441

[bmpeterson7]

This is very helpful; thank you! 

Regarding one of your later points, you are correct that dependent care costs me more than the $5k. I pay over $ 24k per year total; am I supposed to account for the other $ 19k somewhere else in my tax filing?