How to adjust Form 4221

[Taxesforlyfe]

How do you adjust form 4221 20 out the amount that pulls from W-2 box 10? The form 4221 specifically says do not put an amount on 4221 if the dependent care benefit from W-2 box 10 is already included in W-2 box 1 (wages). It looks like TurboTax has an error on the coding bc it results in duplicative taxation situations where dependent care benefits are included in w-2 Box 1 AND then again on form 4221.  This error was in my tax return last year too. Disappointed TurboTax doesn’t have an intake question asking about the Box 10 treatment (is it included already in Box 1) OR let me make an adjustment to 4221 to remove the figure so we don’t get taxed twice on the same item of income.  

[CatinaT1]

I assume you are referring to form 2441.

Here is how W-2 Box 10 interacts with Box 1, and why you might be seeing this amount added back into your taxable income:

By IRS law, up to $5,000 of dependent care benefits reported in Box 10 is pre-tax. This means your employer is legally required to exclude that amount from your taxable wages in Box 1.

Because that money was completely tax-free when you earned it, the IRS requires you to prove you actually spent it on qualifying childcare.

If it looks like this amount is being taxed twice, you are likely experiencing one of two scenarios:

1. If you enter a W-2 with an amount in Box 10, but you do not proceed to the Deductions & Credits section to enter your actual daycare provider information and the expenses you paid, TurboTax assumes you did not use the benefit. Form 2441, Part III will then automatically take that Box 10 amount and add it back to your taxable wages (Line 1 of Form 1040). To fix this, you just need to enter your childcare expenses to offset the benefit:
   1. Select Federal from the left-hand menu.
   2. Select Deductions & Credits from the top menu.
   3. Scroll down to You and Your Family and select Show more.
   4. Select Start or Revisit next to Dependent Care Credit.
   5. Enter your dependent, provider details, and the amount you paid. Once this equals or exceeds your Box 10 amount, the "extra" taxation will disappear.
2. If your employer accidentally included your pre-tax dependent care benefits in Box 1 and Box 10, they have made a payroll reporting error. TurboTax does not ask if Box 10 is included in Box 1 because the software assumes the W-2 is compliant with IRS tax law. You cannot manually override Form 2441 to fix this, because the IRS computers will automatically match your W-2 data to what your employer filed; altering it will trigger a mismatch and potential audit. You need to contact your employer's payroll department and request a W-2c (Corrected Wage and Tax Statement) to remove the pre-tax amount from Box 1.