Child Care Credit Form 2441

[Isabell]

Hello,

I'm not receiving the Child and Dependent Care Credit, is it because my spouse has W2 income, but my income is from a K-1and the K-1 is not considered as "earned income"? Or am I allowed to enter the K-1 income on the 2441 for earned income purposes? 

[Bsch4477 · Accepted solution]

You must have earned income (wages, tips, or net business earnings) to claim the credit

[AmeliesUncle]

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@Isabell wrote:

my income is from a K-1and the K-1 is not considered as "earned income"?

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What kind of K-1 is it?  1120-S? 1065? 1041?

If it is a 1120-S, were you working for the business?

If it is a 1065, is there an amount in Box 14 of the K-1?  Were you working for the business?  

[Isabell]

1120-S 

[Isabell]

Net business earnings is on K-1 as Ordinary income is that considered net earnings?  I know the IRS looks at K-1 as investment earnings so I'm not sure if I'm allowed to enter the K-1 earnings on the 2441 to get the child care credit.

[Isabell]

I had to manually entered the K-1 ordinary income to the 2441 under "earned income from other sources".  I did more research and as long as the owner is 100% participates in the business and it's not interest, gains, etc. then it's earned income and the earnings can be entered on 2441 to receive the deduction. Thank you

[AmeliesUncle]

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@Isabell wrote:

1120-S

Net business earnings is on K-1 as Ordinary income is that considered net earnings?  

I had to manually entered the K-1 ordinary income to the 2441

 owner is 100% participates in the business

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Income on a K-1 from an S-corporation is NOT earned income.  Do NOT manually enter it on the 2441.

As the owner who works for the corporation, you are an employee of the corporation and the corporation is REQUIRED to put you on payroll (along with all of the required federal and state payroll filings and payments) and issue you a W-2.  If the corporation did not do that, I REALLY suggest that you (as the owner of the S-corporation) sit down with a good tax professional.