 Income Tax 2021-2022, Child and Dependant Care Expenses Credit Line Instructions Part Number Four. Get ready to get refunds to the max, diving into Income Tax 2021-2022. Most of this information can be found in the Form 1040 Instructions Tax Year 2021 IRS website, irs.gov, irs.gov, Income Tax Formula down below looking at the credits area noting both credits and deductions are good, but a dollar credit is worth more than a dollar deduction. Typically, the dollar credit, you get the full dollars worth of credit, whereas the dollar deduction is typically going to be a decrease to the taxable income the tax then calculated on that. We could then break out the credits to two major categories, non-refundable and refundable. Non-refundable means it's not going to take the liability below zero. The refundable means it may, and if it did, it wouldn't really be a refund at that point, even though it's still called a refund, because it would be kind of like a benefit program at that point. Some credits might have a non-refundable and refundable component to them. We're looking at page two of the Form 1040. Normally, the credit would roll fin through to schedule three, which would then roll then to the page two of the Form 1040 we look at here. This is the Form 2441. We're concentrating on now the child and dependent care expenses. We're now moving on to line number 14. Quick recap of what we've seen thus far for the calculation. We're looking at the Form 2441. We're looking at the first part, which is the persons or organizations who provided the care. So this is who we paid for the care. And then part two, the credit for the child and dependent care expenses. These are the people that we paid on behalf of, typically our dependents here, the children that we paid on behalf of. We've got then our income threshold. If we're married for both spouses, are going to be important. We then have our percent calculation. And then we're going to have the credit calculation on down below. We've looked at these in prior presentations. Page two then is where we have part number three, dependent care benefits. That then is coming from oftentimes the employer, oftentimes reported on the W2. So line 14, if you had an employer provided dependent care plan, enter online 14. The total of the following amounts included online 12 and 13. So we looked at 12 and 13 last time. So line 12 is enter the total amount of dependent care benefits you received in 2021. Amounts you received as an employee should be shown in box 10 of your form W2. So we looked at the W2 last time you'd have box 10. There's the dependent care benefits that would typically then be reported. So when you do that data input for the W2, if I was to do the data input for the W2, I would most likely see that in box 10. And then that would then be pulling in to the calculation of the 2000. And in essence, we can kind of see the total in general. We'll go through this in detail. But if I see it basically decrease what was the 16,000 before to the 14,000. And then if I go to page one, you can see I had 16,000 here on line three. Now I've got 14,000 because basically I'm lower. I put the full amount of the expenses that were paid. And then I reduced it by kind of like the reimbursements that that we would have had from the benefit plans through the employer plans is kind of the general idea. But we'll go through it in more detail here. So any amount you forfeited you forfeited an amount if you didn't receive it because you didn't incur the expense don't include amounts you expect to receive at a future date any amount you didn't receive but are permitted by the employer to carry forward and use in the following year. Let's look at an example under your employer's dependent care plan. You chose to have your employer set aside $5,000 to cover your 2021 dependent care expenses. So the $5,000 is showing in box 10 of your four of your W2 form. So you'd have your good old W2 form. And right here box 10, you'd have that $5,000 in it in 2021. You incurred and were reimbursed for $4,950 of qualified expenses. So you didn't quite get to the whole $5,000. So you would enter $5,000 on line 12 and $50 the amount forfeited on line 14. So in our example here we got line 12 of the $2,000 and then line 14. I put the 50 and line 14 if you forfeited or carried over to 2022. Any of the amounts reported on line 12 or 13 enter the amount. And so we put the 50 here in this case. And again, you can kind of see if you flow through the impact of it. Now we were at the 16. Now we're at the $14,050 because we didn't really get the benefit because we forfeited that 50. So then you would you would also enter 50 on line 14. If instead of 450 the amount your employer permitted you to carry the $50 forward to use during the grace period in 2022 caution. Don't enter online 14 any amounts that aren't already entered online 12 or 13. So therefore if you carried forward dependent care benefits from 2020 to 2021. And you didn't use the benefits in 2021 and are carrying the benefits forward to 2022. As described in notice 2021-26, you would not enter these amounts online 12, 13 or 14 line 15. Add the amounts online 12 and 13 and subtract from the total amount online 14 enter the result online 15. So this would be line 15 then combined lines 12 and 12 through 14. You got this, this and then minus that see the instructions. Okay. And then line 16 enter the total of all qualified expenses incurred in 2021 for the care of your qualified persons. It doesn't matter when the expenses were paid. So that's going to be line 16 that we had here and I put the total care of the 20,000, which is over the 16 cap. Example you receive 2000 in cash under your employers dependent care plan for 2021. The 2000 is showing in box 10 of your form W2 only 900 was qualified expenses were incurred in 2021 for the care of your five year old dependent child. You would enter 2000 in line 12, which is the full amount. You would enter 2000 on 12 and 900 in line 16 line 18. If filing jointly figure your figure your and your spouse's earned income separately enter your earned income online 18 and your spouses earn income online 19. If your filing status is married filing separately or your spouse was a student or disabled see instructions for line 19. So if we take a look at line 18, we've got enter your earned income so you could take a look at the instructions for the earned income and then line 19. And then line 19 says enter the amount shown below that applies to you if married filing jointly enter your spouses earned income. If you or your spouse was a student or was disabled you can see the instructions line five if married filing separately you can look at the instructions. All others entered the amount from line 18. So we've got this information that's pulling over the 15 and the 20, which you'll remember is mirroring in this case, the 50 and the 20 that we entered on the first page line four and line five. Okay, earned income for figuring the amount of dependent care benefits you are able to exclude or deduct from your income generally include the following amounts. Number one, the amount shown on the form 1040 or 1040 SR line one or form 1040 in our line one minus any of these amounts will a include the scholarship or fellowship grant that wasn't reported to you on the W2. I won't go through all these again because this is basically mirroring what we saw on page one and they're more of the unusual exceptions. So two, so the amount shown on schedule SE. So this is going to be the self employment that might be rolling through if you have like a schedule C sole proprietorship for example line three minus any deduction you claim on schedule one form 1040 line 15. If you use either optional method to figure self employment tax, subtract the deduction you claim on schedule one line 15 from the total of the amounts shown on schedule SE lines three and four B. If you receive church employee income of 108 and 28 cents or more subtract any deduction you claim on schedule one. I always laugh at that 10820. I can't help it. It's just a funny number. It's so small and they put pennies in it. It's so old. I think but in any case three, if you are filing schedule C form 1040 as a statutory employee, the amount shown online one of the schedule and four non taxable combat pay. So here we got that combat pay taken into consideration again if you elect to include it in earned income. However, including this income will only give you a larger exclusion or deduction if your or your spouse's other earned income is less than the amount entered online 17. So we got that that combat pay which usually isn't included in income for federal income tax purposes but may be able to be included for purposes of calculating credits. So it's kind of like this multi purpose thing that you can use for whichever way you want in different places to maximize the benefit oftentimes. So if you are filing jointly and both you and your spouse received non taxable combat pay, you can each make your own election. In other words, if one of you makes the election, the other one can also make it or doesn't have to. So that's the general idea here tip you can choose to include your non taxable combat pay in earned income when figuring your exclusion or deduction. We saw this tip before so I won't go through that again. Let's go to the next item special situation if you are filing jointly disregard community property laws and determining the earned income of an individual. If your spouse was a full time student or disabled in 2021, see the instructions for lines four and five earlier line 19. If your filing status is married filing separate see married persons filing separate earlier. So that's the exception that's the unusual situation if you're married usually you're filing married filing joint. Otherwise there could be restrictions to whether you could take the credit or not. You are considered unmarried under that rule. That would be the question. Yes, enter your earned income. If no enter your spouse's earned income on line 19. If you or your spouse was a full time student or disabled 2021 you could see instructions line 21 enter online 21 the maximum amount that you may exclude for a year under your dependent care plan for 2021. The ARP permits employers to increase to 10,500 previously 5,000 the maximum amount that can be excluded from an employee's income through a dependent care assistance program. That's line 21. So line 21 here there's the 10,005 entered 10,500 5,250 if married filing separately and you were required to enter. If you entered an amount online 13 add it to the 10,500 and so on. So there's the 10,005 item there for married employees filing separate returns the maximum amount is increased to 5,250 previously 2,500. Your employer can tell you whether your dependent care plan was amended to increase the amount that can be excluded. You might have to talk to your employer about that. Additionally, as discussed earlier in the instructions for line 13, your employer may have amended their plan to allow employees to carry over unused benefits from a planned year ending in 2020 to a planned year ending in 2021. Don't enter more than the maximum amount allowed under the dependent care plan. For example, if your dependent care plan only allows a maximum of $5,000 to be excluded subtract $5,000 from the 10,500 amount to enter online 21 line 24 include your deductible benefit in the total entered on schedule C form 1040 line 14 schedule E 1040 that would be schedule C is a sole proprietorship schedule E would be the rental a line 19 or line 28 or schedule F farm of 1040 line 15 whichever applies line 26 if line 26 is more than zero you have taxable you have taxable dependent care benefits include this amount in the total on form 1040 or 1040 SR line one or form 1040 in our line one a whichever applies. So that's going to be line 26 we're down to at this point. So line 26 is the taxable benefits that that you might have. So we don't have any in our example here enter DCB if the space to the left of that line to show the taxable dependent care benefits are included in that amount line 27 through 31. If you are reporting dependent care benefits in part three of the form you will need to complete a lines 27 through 31 if you are also claiming the credit for child and dependent care expenses in part two of the form. So this would be the last kind of component. So in essence then we got to complete this last bit here which is basically recalculating you know that original amount we looked at we looked at this at the beginning it was at the 16,000 and then we made the adjustments for the 2000 and the 50 in essence to get to the 1450 in general pulling over to page one and then we've got our regulations starting out here on line three of that 1450 that's the kind of general concept of it at this point.