Child and Dependent Care Credit denied - spouse has no earned income
When the taxpayer has income reported on a W-2 and the spouse has a 1099-MISC reporting income, when trying to claim the Child and Dependent Care Tax Credit, there is a credit disqualifying message due to not having earned income for the spouse.
This can be true, but it depends on the type of income reported on the Form 1099-MISC. For example, if it is rental income (Box 1), it is not considered earned income for purposes of the Child and Dependent Care Tax Credit calculations.
If the income on the Form 1099-MISC is reported on any of the following forms or schedules, it would be considered earned income:
- Schedule C. Consulting, freelancing, contract work, side jobs, your business.
- Schedule F. Farming (sales of livestock or crops.
- Form 4835. Farming rental income.
Note: If you have taken a loss for the year and that is your only income, you will not qualify for the credit. Additionally, if you are Married Filing Jointly and you or your spouse's only earned income is a loss, you will also not qualify.
If you received income from the sources mentioned above, you will need to access that area of the program and ensure that the section is completed with the necessary information in order for the income to be considered earned income. Once the area is completed, you will then be able to take the child and dependent care expense credit.
For assistance on locating these areas, please refer to Where Do I Enter... support article.