 Income Tax 2021-2022, Child and Dependent Care Expenses Credit, Lined Instructions Part 3. Get ready to get refunds to the max, diving in to 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. We're down here in the credit area of the Income Tax formula, credits and deductions, both goods. But if you had a dollar credit versus a dollar deduction, credit basically better because you get the entire dollar of the credit in general, whereas the dollar worth of deduction would be a decrease to the taxable income the tax then being calculated upon it. Note that the credits can be in two main categories. We could think about them as non-refundable credits and refundable credits. Non-refundable credits not taking the tax liability below zero. The refundable credits may, and if they did, you would get a refund, but it's not really a refund. In that case, it's more kind of like a benefit type program. Some credits might have a non-refundable and refundable portion to them. This is the second page of the Form 1040. We would generally have the information rolling into Schedule 3 and then rolling into the second page here, Line 31 on the Form 1040. This is the Form 2441 that we're considering now. This is the child and dependent care expenses. So we're looking at Line 8 this time. Enter on Line 8, the decibel amount shown next to that applies to the amount on Line 7. If Line 7 is over $438,000, don't complete Line 8, enter zero on Line 9A. You may be able to claim a credit on Line 9B. So if we look at our statement, this is what we have thus far. We're going down here basically to Line 8. So thus far we've been entering the information for who we pay to the care provider. We've got then the credit for the child and dependent care expenses. We then have our list of generally our dependents that we paid the care on behalf of or for. And then we've got the calculation 3 through 6. And now we're down here on Line 8 and we're entering our percent here on Line 8. And if we were to check out the instructions, enter on Line 8 the decimal amount shown below that applies to the amount on Line 7. We're noting that Line 7 is basically the income amounts that we had put in place. And we talked about them in the prior presentation that we had to break out on a spouse by spouse basis for Lines 4 and Line 5. So in this case, that was 50 and 20 getting us up to 70. And then Line 8, enter on Line 8 the decimal amount that shows that, okay, this is all messed up. Quick recap of what we've looked at so far. We've gone through the column A, column B, Part 1, which is the persons or organizations who provided the care. So this is the people that we actually paid. We've got the one organization here in the example. Then we have the credit for the child and dependent care expenses. We've got the two individuals here. These are typically dependents that were paying the care provider on behalf for those dependents. We have the two listed, but only the one that we're providing the care for. Line 3 basically gives us that 16,000 calculation. And then we had the calculation of the earned income. If marriage, you need both spouses to have their income lines that we talked about in prior presentations. We got the 50 and the 20 here. That's going to bring us to this line number 7, which is the 70,000. And now we're moving on to Line 8 here, which says enter on Line 8 the decimal amount shown below that applies to the amount on Line 7. So if Line 7 is 125,000 or less, so you can see like an income threshold there, then enter 50 or 0.5, 50% on Line 8. If Line 7 is over 125,000 and no more than 438,000, see instructions for Line 8 for the amount to enter. So then you're going to have like that phase out, which is going to be done by adjusting that percentage. If Line 7 is over 438,000, don't complete Line 8, enter 0 on Line 9A. You may be able to claim the credit on Line 9B. So then you'd have to go on to Line B and continue on there. So Line 8 then says enter on Line 8 the decimal amount shown next to that applies to the amount on Line 7. If Line 7 is over 438,000, don't complete Line 8, enter 0 on Line 9A. So that's the general idea here. It's kind of like the phase out schedule, so the 2021 phase outs. So for example, if I was to enter, if I was to increase the income here, so now I'm at 170,000, I'm over the 125. Therefore, the rate needs to be pulling from the table. It's no longer 50%, but now it's at that 0.27. So software is useful or helpful at that point in time to help us out with the phase outs. Of course, Line 9B, if you had qualified expenses for 2020 that you didn't pay until 2021, and you didn't claim a credit on the maximum amount of qualified expenses for 2020, you may be able to increase the amount of the credit you can take in 2021 to figure that credit. Complete Worksheet 8 at the end of these instructions. Enter on Line 9B the amount from Line 13 of Worksheet A. The amount on Line B is a refundable credit for 2021 if you check the box on Line B. Example, in 2020, Kate had childcare expenses of $2,600 for her 12-year-old child. Of the $2,600, she paid $2,000 in 2020 and $600 in 2021. Kate will use the Worksheet A to figure her credit on the 2020 expenses paid in 2021. The credit for these expenses will be entered on her 2021 form, Line 9B. So if we jump back on over to the forms here, that possibly would be on Line 9B. Now, when you have this crossover from a prior year to a current year, it's useful. It's nice to have software that's going to help you to populate some of that information. So anytime you got that kind of carryover kind of situation, your tax returns getting a bit more complicated, it might be easier if it's of new client to enter the data all into the prior year return and then match it up and then use the carry forward information to help you to populate the current return in those instances. So there's just a quick look at that line 10. Add lines 9A and 9B and enter the result in line 10. If you check the box in line B, this is your refundable credit for child and dependent care expenses. Enter the amount from this line on schedule 3, form 1040 line 13G. So now we're going to go back on over and say, okay, now we've got the amount that's been calculated here, which is going to be from A. I got the 8,000, the 525, that's the 8,525. Now we marked off up top here, which is generally marked off the checkbox for B. That means it's refundable generally. So then if I go to the schedule 3 page 2, we've got it populated here, then it falls into the form 1040 and it's in like the refundable kind of area down below is the general idea. So if you didn't check box B, go to line 11. So if we didn't check box B, which is the more unusual type of situation, if we go to box B here and say, we don't want that checked, we're going to say, no check there, then now as I go through it, we've got then the amounts not going to pull through because you're going to have basically it's not going to be all refundable. So when we've ultimately pulled it over to schedule C, you could see it's schedule 3, it's in the credit for child and dependent care expenses up top as opposed to in the refundable portion and when it pulls then ultimately to the form 1040, now it's coming up here as opposed to being down in the refundable. So that's more of the unusual kind of situation. So if you don't check the box B, you got to go to line 11 and continue on from there. So line 11, only complete line 11, if you did not check the box on line B, so that's the more unusual situation line B having to do with whether you lived in the United States. So box B, recap B for 2021, your credit for child and dependent care expenses is refundable if you or your spouse if married filing joint had a principal place of a boat in the United States for more than half of 2021. So that's when it would be checked if it was not checked, then that would be the more kind of unusual situation. If you don't check the box in line B, your credit is non refundable and limited by the amount of your tax. So if it's non refundable, it's in that non refundable area. That means you can't take it below kind of zero in that case and get a refund even without it like a tax liability. You cannot you cannot enter on schedule three form 1040 line 13 g amount from line 10. So we saw the difference on the schedule C or three words reported. Instead, you must complete the credit limit worksheet next to next to figure the amount to enter online 11. The non refundable credit online 11 is reported on schedule three three form 1040 line two. So we got the credit limit little worksheet here. I won't go through it in detail, but software helps with the calculation. Line 12 enter the total amount of the dependent care benefits you received in 2021 amounts you received as an employee should be shown in box 10 of your form of your forms W2. However, don't include amounts reported in box 10 that exceeds your plans exclusion and are therefore reported as wages in box one. So box 12 is on page two, which is part three, and it says 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 the form W2. So if you have the trustee W2 here you'd have the box 10, which is the dependent care benefits and when you populate the W2, then it would it would populate for you. So you go in here and say, OK, then I've got box number 10 for the W2. And let's say that it was it was like 2000 in box 10, then that 2000 generally of of income. If it was not included in income by the employer, then that we're assuming it wouldn't be included in box one. That's kind of part of the point here. And if it's not included in part one line one of the W2, you already got the benefit for it. That's the that's part of the point. So it's not being taxed for federal income tax purposes. Therefore, you can't really double it up here and get a benefit with a credit as well. So that's going to be that's going to be the idea. So if I pull that on over, then I put the full amount that we paid, you'll recall on page one, the full amount that was paid here. But then I've got this amount of the 2000 that's pulling in from that W2 data input, which which is making the adjustment. And in essence, the 16,000 that I had before is basically being reduced by the 2000, which pulls over to page one. So now I've got up here, the 14 is kind of like the starting point as opposed to the 16 that it was before. That's kind of just the general way that's going to pull through. The ARP permits employers to increase the maximum amount that can be excluded from an employee's income through a dependent care assistance program for 2021, the maximum amount increased to 10,500. So that's generally where the cap would be for the ability to take advantage of that program and reduce the amount you would think then in box one of the W2 for that program. So for merit employees filing separately, our returns the maximum amount is increased to 5,250 previously 2,500. So then line 13, if you had an employer provided dependent care plan, your employer may have permitted you to carry forward any unused amount from 2020 to using 2021. Enter online 13, the amount you carried forward temporary special rules for unused amounts in dependent care FSA section 214 of the taxpayer certainty and disaster tax Relief Act of 2020 allows your employer to amend its dependent care plan to allow employees to carry over unused benefits from a plan year ending in 2020 to a plan year ending in 2021 from a plan year ending in 2020 to a plan year ending in 2022. From plan year ending in 2021 to a plan year ending in 2022. Alternatively, your employer may extend the claims period for a plan year ending in 2020 or 2021 to 12 months after the end of the plan year for unused benefits remaining in the dependent care FSA. Your employer can tell you whether your dependent care plan was amended unused amounts from 2020 or added to the maximum amount dependent care benefits that are allowed for 2021. So obviously you might want to talk to your employer in these instances and see if they if they basically took these into consideration and get more detail on that particular instance from them in that case. For more information about these rules, you can see these various publications. I won't go through them here. You could find them on the IRS website irs.gov irs.gov. So line 13 continued if you have an employer provided dependent care plan, your employer may have permitted you to carry forward any unused amount from 2020 to using 2021. And then enter online 13 the amount you carried forward temporary carry forward rule for dependent care FSAs were dependent aged out during the COVID-19 pandemic. Okay, so section 214 of the taxpayer certainty and disaster tax relief act of 2020 allows the employer to amend its dependent care plan to extend the maximum of the eligible dependents from 12 to 13 for dependent care FSAs for unused amounts from the 2020 plan you're carry over into the 2020 plan year. So the 2020 plan you're carried over into the 2021 plan year. Your employer can tell you whether your dependent care plan was amended. If your employer's plan has adopted this change, you may use the unused dependent care benefits from the 2020 plan. You're carried over into 2021 plan year to pay for a child under age 14 for 2021. This relief only applies to amounts received from a dependent care plan and entered on form 2441 line 13. It does not apply to amounts paid outside a dependent care plan for more information about this. You can see notice 2021-15.