 Income tax 2022-2023. Child and dependent care expenses credit. Can you claim the credit? Part number two. Let's do some wealth preservation with some tax preparation. Most of this information comes from publication 503. Child and dependent care expenses tax year 2022. You can find it on the IRS website, irs.gov, irs.gov. Looking at support accounting instruction by clicking the link below, giving you a free month membership to all of the content on our website, broken out by category, further broken out by course. Each course then organized in a logical, reasonable fashion, making it much more easy to find what you need than can be done on a YouTube page. We also include added resources, such as Excel practice problems, PDF files, and more like QuickBooks backup files when applicable. So once again, click the link below for a free month membership to our website and all the content on it. The income tax formula, we're at the bottom in the credit area. Remember, in the first half of the income tax formula is an essence and income statement, although a strange one, the bottom line being the taxable income similar to the net income in a normal income statement. We then calculate the tax on that, not with one rate, not with a flat tax, but with a progressive tax system to get to the tax before credits and other taxes. Then we're gonna be dealing with those credits and other taxes, like the self-employment tax. Then we're gonna be dealing with the payments, which could be in the form of estimated tax payments and withholdings to get to the bottom line, the amount refund or amount due. Now remember, the credits are similar to deductions in that we like them both. However, if we could get a dollar credit versus a dollar deduction, then we would rather have the credits because we will typically get the full benefit of the credit in that case. Whereas if we got a dollar deduction, it would only decrease the taxable income and we'd only get a benefit that would be based on the tax rate. Also note, we're breaking the credits out into non-refundable and refundable credits, the non-refundable credits don't take the tax liability below zero because then it wouldn't be a tax system, but rather a benefit type of program, a welfare type of program, and the refundable credits are acting as a benefit or welfare tax type of program because they are extending possible benefit below a zero tax liability. Okay, that said, we are continuing on now with the child and dependent care expenses credit, noting that this is different than the child tax credit. The child tax credit is a fairly straightforward credit because you have a qualifying child to get the credit. These is going to be related to child independent care expenses. The major idea being that you are trying to be able to work, the taxpayers trying to be able to work and they have these expenses for childcare in order to do so. Okay, so now we're going to be continuing on. We have camp now. So the cost of sending your child to an overnight camp isn't considered a work-related expense. So the cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity such as computers or soccer. Let's take a look at an example. Example number one, you send your nine-year-old child to a summer day camp while you work. So you say, hey look, I sent the kid over to the camp so I can work over here. So you would think that the camp might be being used in that case as a means to be able to work. So the camp offers computer activities and recreational activities such as swimming and arts and craft. So the full cost of the summer day camp may be for care and the costs may be work-related expenses. So once again, the full cost of the summer day camp may be for care. So in that case, the idea being the cost is for care. Notice that it gets a little bit messy because obviously you don't wanna have the idea being that you're gonna put your child in a place just for care where there's absolutely no education or recreational activity or anything like that so that you can claim the credit. So you would think that if these other things are not the primary purpose, the primary purpose is care. You would think that you might be able to claim the credit, the rest is just a drop in the bucket, right? You have to, it's gonna be the other things that could be involved in it. All right, example number two. You send your 10-year-old child to a math tutoring program for 10 hours per day during the summer while you work. So the cost of the tutoring program isn't for care and the costs are not considered work-related expenses. So the idea here being that the primary purpose, this is my interpretation of the example, is for the tutoring and not so that you could basically work and therefore it wouldn't be something that would be constituting the credit which is designed for work-related credit. All right, transportation. If a K provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualified person. This includes transportation by bus, subway, taxi, or private car. However, transportation not provided by a care provider isn't for the care of a qualified person. Also, if you pay for transportation cost for the care provider to come to your home, that expense isn't for care of a qualified person. All right, fees and deposits. Fees you pay to an agency to get the services of a care provider, deposits you pay to an agency or preschool application fees and other indirect expenses are work-related expenses if you have to pay them to get care. So we're gonna say these are gonna be the other things that are kind of incidental but they're in the process of getting care, even though they aren't directly for care. So they're not, you could say, well, they're not actually for the care themselves but the end goal is for the care that you need in order to do the work. So however, a for-fitted deposit isn't for care of a qualified person if care isn't provided. Example one, you pay to fee to get an agency to get the services of the nanny who cares for your two-year-old daughter while you work. The fee you paid is a work-related expense because you paid it not directly to the nanny for the care but you've paid it to get the nanny for the care. So the end goal, the telos, the reason is for the care. So you would think it would qualify. Example two, you placed a deposit with a preschool to reserve a place for a three-year-old child. You later sent your child to a different preschool and for-fitted the deposit. So the for-fitted deposit isn't for care and therefore not a work-related expense. Household services, expenses you pay for household services meet the work-related expense test if they are at least partly for wellbeing and protection of a qualified person. So the house services gets a little bit shady in terms of the line of what it's for, right? But you would think that if it's for the qualified person, then those would qualify. Definition, definition. Household services are ordinary and necessary services done in around your home that are necessary to run your home. They include, for example, the services of a cook, maid, babysitter, housekeeper, and cleaning person. Well, how is my home working without all those things? And cleaning person, if the services were partly for the care of the qualified person. However, they don't include the services of a chauffeur, a bartender, or a gardener. Oh, just the bartender, that's the only one I have for crying, you excluded it. Just kidding, I don't have a bartender. Household, housekeeper. So in this publication, the term housekeeper refers to any household employee whose services include the care of a qualified person. So expenses partly work-related. So now they're partly work-related. So if part of an expenses work-related for either household services or the care of a qualified person and part is for other purposes you have to divide the expense. Here's where it gets a little messy. You gotta parse things out. You got a bit of it's going for one item, a bit of it's going for something else. You would think you would have to divide out the amount that might be qualified for the credit. So to figure your credit, count only the part that is work-related. However, you don't have to divide the expense if only a small part is for other purposes. So let's look at an example. You pay a housekeeper to care for your nine-year-old and 14-year-old children so you can work. The housekeeper spends most of the time during normal household work and spends 30 minutes a day driving you to and from work. So you don't have to divide the expenses. You can treat the entire expense of the housekeeper as work-related because the time spent driving is minimal. The time spent driving is just a drop in the bucket compared to the whole thing. So you don't need to parse that one out in that case. So nowhere do you have to divide the expenses between the two children, even though the expenses are partly for the 14-year-old child who isn't a qualified person because the expense is also partly for the care of nine-year-old child who is a qualified person. However, the dollar limit discussed later is based on one qualified person, not two. Okay, so now we've got meals and lodging provided for the housekeeper. So now you've got the housekeeper. You're paying the housekeeper, but they're also giving them meals and lodging. And normally, if you give someone something other than just money, it's still basically income. It's just in another format of income. And so then there's questions about that and what about these other items in terms of being able to take credit, for example. So if you have expenses, but then you could say that they might be in material and so forth. So we have the same kind of concerns come to play. So if you have expenses for meals that your housekeeper eats in your home because of his or her employment, count these as work-related expenses. If you have extra expenses for providing lodging in your home to the housekeeper, count these as work-related expenses also. Example, to provide lodging to the housekeeper, you move to an apartment with an extra bedroom. So you can count the extra rent and utility expenses for the housekeeper's bedroom as work-related. However, if your housekeeper moves into an existing bedroom in your home, you can count only the extra utility expenses as work-related. Okay, taxes paid on wages. The taxes you pay on wages for qualifying children and dependent care services are work-related expenses. For more information on household employers' tax responsibilities, you can see, do you have household employees later? So if you have like a household employee situation, then you gotta get into, well, do I have to withhold social security and Medicare and payroll taxes and all that kind of stuff too. All right, payments to relatives or dependents. You can count work-related payments you make to relatives who aren't your dependents even if they live in your home. However, don't count any amounts you pay to. One, a person from whom you or your spouse is, if filing jointly, can claim as a dependent. So you can't claim someone that you can claim as a dependent that you're paying for the care because that might be like a child or something like that that would be, you'd see weird things going on in that case. So two, your child, including stepchild or foster child who was under age 19 at the end of the year, even if he or she isn't your dependent. So again, you can think of people trying to falsify the structure of that pain, their own child and calling it an expense that you can take or a credit-related expense that you can take a credit for. So three, a person who was your spouse anytime during the year. So you can't like pay your spouse that was your spouse during the year and take an expense-related credit for. So four, the parent of your qualifying person if your qualifying person is your child and under age 13. So you can't pay the parent of the child because you think that would be kind of a related situation as well. So what's your filing status? Generally married couples must file a joint return to take their credit. So if you're married, you typically can only file married or married filing separately. But if you file married filing separately, you often lose out on these kind of credits oftentimes because the hours is skeptical. I was kind of skeptical. Of people taking advantage of the married filing separately to maximize credits, for example. However, if you are legally separated or living apart from your spouse, you may be able to file a separate return and still take the credit. So that gets into the state laws and stuff and say, are you really separated? You know, you didn't get a legal divorce, but you're basically separated and so on. So legally separated, what is it? You aren't considered married if you are legally separated from your spouse under a decree or divorce or separate maintenance. So you may be eligible to take the credit on your return using head of household filing status in that case. So married and living apart, you aren't considered married and are eligible to take the credit if all the following apply. One, you file a joint return apart from your spouse. You file a return apart from your spouse, not a joint return. Two, your home is the home of a qualified person for more than half the year three. You pay more than half the cost of keeping up your home for the year and for your spouse doesn't live in your home for the last six months of the year. Example, Amy separated from her spouse in March. She isn't separated under a decree of divorce or separate maintenance agreement and uses the married filing separate filing status. Amy maintains a home for herself and Sam, her disabled brother. Sam is permanently and totally disabled and unable to care for himself. Because Sam earns $5,600 in interest income, Amy can't claim him as a dependent. His gross income is greater than 4,400. And because Amy isn't able to claim Sam as a dependent and she's still married as of the end of the year, she can't claim the head of household filing status. Amy's filing status is married filing separately and Sam qualifies as a qualified person for the child and dependent care credit. So because of the following facts, Amy is able to claim the credit for child and dependent care expenses even though Amy uses the married filing separately filing status. So that's kind of an exception to the general idea of if you're married filing separate that you may lose the credit sometimes in those cases. Okay, so Amy didn't live with her spouse for the last six months of the year. She has maintained a home for herself and Sam, a qualified person since she separated from her spouse in March. She maintains her own household and provides more than half of the cost of maintaining that home for her and Sam. Amy pays an adult daycare center to care for Sam to allow her to work. All right, example number two, Dean separated from his spouse in April. He isn't separated under a decree or divorce or separate maintenance agreement. He and his house haven't lived together since April and Dean maintains his own home and provides more than half the cost of maintaining that home for himself and his daughter Nicole who is permanently and totally disabled. All right, so these are sad examples. Because Nicole is married and files a joint return with her husband who is away in the military, Dean can't claim Nicole as a dependent and therefore can't use the head of household filing status. Dean's filing status is married filing separately and Nicole qualifies as a qualified person for the child and dependent care credit. So because of the following facts, Dean is able to claim the credit for child and dependent care expenses even though he uses the married filing separately filing status, Dean didn't live with his spouse for the last six months of the year. He has maintained a home for himself and Nicole a qualified person since he separated from his spouse in April. He maintains his own household and provides more than half of the cost of maintaining that home for him and Nicole. Dean pays a daycare provider to care for Nicole to allow him to work. All right, cost of keeping up a home. So the cost of keeping up a home normally includes property taxes, mortgage interest, rent, utility charges, home repairs, insurance and insurance on the home and food eaten at home. The cost of keeping up a home don't include payments for clothing, education, medical treatment, vacations, life insurance, transportation or mortgage principle. So they also don't include the purchase permanent improvement or replacement of property. For example, you can't include the cost of replacing a water heater. However, you can include the cost of repairing a water heater. All right, death of spouse. So if your spouse died during the year and you don't remarry before the end of the year, you must generally file a joint return to take the credit. So if you do remarry before the end of the year, the credit can be claimed on your deceased spouse's own return. Care provider identification test. You must identify all persons or organizations that provide care for your child or dependent use form 2441 part one to show the information. So now you gotta tell them who the expenses went to. So if you don't have any care providers and you are filing form 2441 only to report taxable income in part three, enter none in line one column A. Information needed. To identify the care provider, you must give the providers one their name, two address and three taxpayer identification number. So like with anything else, you paid someone for the care and the IRS wants to know who they are. The IRS sees people as numbers. So they wanna know how they can give get at those people, right? They want their name, where they're located and their identification number. So if the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. If the care provider is an organization, then it is the employer identification number, otherwise known as the EIN. You don't have to show the taxpayer identification number. If the care provider is a tax exempt organization, such as a church or a school, in this case, enter tax exempt and the space where form 2441 asks for the number. If you can't provide all the information or the information is incorrect, you must be able to show that you used due diligence, discuss later and trying to furnish the necessary information. All right, getting the information. You can use form W-10. You can find the IRS website to request the required information from the care provider. If you don't use form W-10, you can get the information from one of the other sources listed in the instructions for form W-10, including, number one, a copy of the providers a social security card. Number two, a copy of the providers completed form W-form W-4, employee withholding certificate. So if they're like a household employee or something like that, then you would have the W-4, so you can deal with the whole payroll situation as a payroll form typically. Employees withholding certificate. If he or she is your household employee, three, a copy of the statement furnished by your employer. If the provider is your employer's dependent care plan or four, a recently printed letterhead or invoice that shows the provider's name, address, and T-I-N, due diligence. What does it mean to do the due diligence to try to get this information if you couldn't get it for whatever reason? You gotta try, that's due diligence. So if the care provider information you gave is incorrect or incomplete, your credit may not be allowed. However, if you can show that you use due diligence and trying to supply the information, you can still claim the credit. So you can show due diligence by getting and keeping the provider's completed form W-10 or one of the other sources of information just listed. Care providers can be penalized if they don't provide this information to you or if they provide incorrect information. So obviously, if they're in the service of care providing, they should be able to provide this information if they're like a business of care providing, if they're an individual and whatnot, then you're gonna need to get the information in order to provide it, to take the credit. Provider refusal, what if they refuse? So if the provider refuses to give you the identification information, you should report on form 2441, whatever information you have, such as the name and address, enter quote, see attached statement, end quote, end the columns calling the information you don't have, then attach a statement explaining that you requested the information from the care provider, but the provider didn't give you the information. Be sure to write your name and SSN, social security number on this statement. The statement will show that you used due diligence in trying to furnish the necessary information. All right, US citizens and resident aliens living abroad. If you are living abroad, your care provider may not have and may not be required to get a US taxpayer identification number, an EIN, for example, an SSN social security number or EIN. So if so, enter LAFCP living abroad foreign care provider in the space that the care provider's taxpayer identification number.