2001 Publication[971]

Department of the Treasury Internal Revenue Service Contents Important Reminders . . . . . . . . . . . . . . . . . . . . . . . 1 2 2 2 5 5 7 9 9 9 10 10 11 12 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Tests To Claim the Credit . . . . . . . . . . . . . . . . . . . . Qualifying Person Test . . . . . . . . . . . . . . . . . . . . Keeping Up a Home Test . . . . . . . . . . . . . . . . . . Earned Income Test . . . . . . . . . . . . . . . . . . . . . . Work-Related Expense Test . . . . . . . . . . . . . . . . Joint Return Test . . . . . . . . . . . . . . . . . . . . . . . . Provider Identification Test . . . . . . . . . . . . . . . . . How To Figure the Credit . . . . . . . . . . . . . . . . . . . . Figuring Total Work-Related Expenses . . . . . . . . Earned Income Limit . . . . . . . . . . . . . . . . . . . . . . Dollar Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Amount of Credit . . . . . . . . . . . . . . . . . . . . . . . . Publication 503 Cat. No. 15004M Child and Dependent Care Expenses For use in preparing 2001 Returns How To Claim the Credit . . . . . . . . . . . . . . . . . . . . 13 Employment Taxes for Household Employers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 How To Get Tax Help . . . . . . . . . . . . . . . . . . . . . . . 18 Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Important Reminders Limit on credit. For 2001, your credit can offset both your regular tax (after reduction by any foreign tax credit) and your alternative minimum tax, if any. Before 2000, the credit could offset only your regular tax. Taxpayer identification number needed for each qualifying person. You must include on line 2 of Form 2441, Child and Dependent Care Expenses, or Schedule 2 (Form 1040A), Child and Dependent Care Expenses for Form 1040A Filers, the name and taxpayer identification number (generally the social security number) of each qualifying person. See Taxpayer identification number under Qualifying Person Test, later. You may have to pay employment taxes. If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes. Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. See Employment Taxes for Household Employers, later. Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1–800–THE–LOST (1–800–843–5678) if you recognize a child. See How To Get Tax Help, near the end of this publication, for information about getting these publications and forms. Introduction This publication explains the tests you must meet to claim the credit for child and dependent care expenses. It explains how to figure and claim the credit. You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not able to care for himself or herself. The credit can be up to 30% of your expenses. To qualify, you must pay these expenses so you can work or look for work. This publication also discusses some of the employment tax rules for household employers. Dependent care benefits. If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them. You must complete Part III of Form 2441 or Schedule 2 (Form 1040A) before you can figure the amount of your credit. See Employer-Provided Dependent Care Benefits under How To Figure the Credit, later. Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions. You can e-mail us while visiting our web site at www.irs.gov. You can write to us at the following address: Internal Revenue Service Technical Publications Branch W:CAR:MP:FP:P 1111 Constitution Ave. NW Washington, DC 20224 We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Tests To Claim the Credit To be able to claim the credit for child and dependent care expenses, you must file Form 1040 or Form 1040A, not Form 1040EZ, and meet all the following tests. 1) The care must be for one or more qualifying persons who are identified on the form you use to claim the credit. (See Qualifying Person Test.) 2) You (and your spouse if you are married) must keep up a home that you live in with the qualifying person or persons. (See Keeping Up a Home Test, later.) 3) You (and your spouse if you are married) must have earned income during the year. (However, see Rule for student-spouse or spouse not able to care for self under Earned Income Test, later.) 4) You must pay child and dependent care expenses so you (and your spouse if you are married) can work or look for work. (See Work-Related Expense Test, later.) 5) You must make payments for child and dependent care to someone you (or your spouse) cannot claim as a dependent. If you make payments to your child, he or she cannot be your dependent and must be age 19 or older by the end of the year. (See Payments to Relatives under Work-Related Expense Test, later.) 6) Your filing status must be single, head of household, qualifying widow(er) with dependent child, or married filing jointly. You must file a joint return if you are married, unless an exception applies to you. (See Joint Return Test, later.) 7) You must identify the care provider on your tax return. (See Provider Identification Test, later.) 8) If you exclude dependent care benefits provided by your employer, the amount you exclude must be less than the dollar limit for qualifying expenses (generally, $2,400 if one qualifying person was cared for, or $4,800 if two or more qualifying persons were cared for). (See Reduced Dollar Limit under How To Figure the Credit, later.) These tests are presented in Figure A and are also explained in detail in this publication. Useful Items You may want to see: Publication ❏ 501 ❏ 926 Exemptions, Standard Deduction, and Filing Information Household Employer’s Tax Guide Form (and Instructions) ❏ 2441 Child and Dependent Care Expenses ❏ Schedule 2 (Form 1040A) Child and Dependent Care Expenses for Form 1040A Filers ❏ Schedule H (Form 1040) Household Employment Taxes ❏ W–10 Dependent Care Provider’s Identification and Certification Page 2 Qualifying Person Test Your child and dependent care expenses must be for the care of one or more qualifying persons. A qualifying person is: Figure A. Can You Claim the Credit? Start Here Was the care for one or more qualifying persons? Yes Did you1 keep up a home for you and that qualifying person or persons? Yes Did you have earned income during the year? Yes Did you pay the expenses to allow you2 to work or look for work? Yes Were your payments made to someone you or your spouse could claim as a dependent? No Were your payments made to your child who was under the age of 19 at the end of the year? No Are you single? Yes No Are you filing a joint return? Yes No Do you meet the requirements to be considered unmarried? Yes Yes Do you know the care provider’s name, address, and identifying number? No Did you make a reasonable effort to get this information? (See Due diligence.) Yes Did you exclude at least $2,400 of dependent care benefits ($4,800 if two or more qualifying persons)? No You CAN claim the child and dependent care credit. Fill out Form 2441 or Schedule 2 (Form 1040A). 1 2 3 No No 2 No No Yes Yes No No Yes You CANNOT claim the child and dependent care credit.3 This includes your spouse if you were married. This also applies to your spouse, unless your spouse was disabled or a full-time student. If you had expenses that met the requirements for 2000, except that you did not pay them until 2001, you may be able to claim those expenses in 2001. See Expenses not paid until the following year under How To Figure the Credit. Page 3 1) Your dependent who was under age 13 when the care was provided and for whom you can claim an exemption, 2) Your spouse who was physically or mentally not able to care for himself or herself, or 3) Your dependent who was physically or mentally not able to care for himself or herself and for whom you can claim an exemption (or could claim an exemption except the person had $2,900 or more of gross income). If you are divorced or separated, see Child of Divorced or Separated Parents, later, to determine which parent may treat the child as a qualifying person. For information on claiming an exemption, see Publication 501. Physically or mentally not able to care for oneself. Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. Person qualifying for part of year. You determine a person’s qualifying status each day. For example, if the person for whom you pay child and dependent care expenses no longer qualifies on September 16, count only those expenses through September 15. Also see Dollar Limit under How To Figure the Credit, later. Taxpayer identification number. You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). If the correct information is not shown, the credit may be reduced or disallowed. Individual taxpayer identification number (ITIN) for aliens. If your qualifying person is a nonresident or resident alien who does not have and cannot get a social security number (SSN), use that person’s ITIN. The ITIN is entered wherever an SSN is requested on a tax return. If the alien who is required to furnish a taxpayer identifying number does not have an ITIN, he or she must apply for an ITIN on Form W–7, Application for IRS Individual Taxpayer Identification Number. An ITIN is for tax use only. It does not entitle the holder to social security benefits or change the holder’s employment or immigration status under U.S. law. Adoption taxpayer identification number (ATIN). If your qualifying person is a child who was placed in your home for adoption and for whom you do not have an SSN, you must get an ATIN for the child. File Form W– 7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions. Page 4 Child of Divorced or Separated Parents To be a qualifying person, your child usually must be your dependent for whom you can claim an exemption. But an exception may apply if you are divorced or separated. Under the exception, if you are the custodial parent, you can treat your child as a qualifying person even if you cannot claim the child’s exemption. If you are the noncustodial parent, you cannot treat your child as a qualifying person even if you can claim the child’s exemption. This exception applies if all of the following are true. 1) One or both parents had custody of the child for more than half of the year. 2) One or both parents provided more than half of the child’s support for the year. 3) Either: a) The custodial parent signed Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, or a similar statement, agreeing not to claim the child’s exemption for the year, or b) The noncustodial parent provided at least $600 for the child’s support and can claim the child’s exemption under a pre-1985 decree of divorce or separate maintenance, or written agreement. For purposes of 3(a), a similar statement includes a divorce decree or separation agreement that went into effect after 1984 that allows the noncustodial parent to claim the child’s exemption without any conditions, such as payment of support. You can use Figure B to see whether this exception applies to you. If it applies, only the custodial parent can treat the child as a qualifying person. If the exception does not apply, follow the regular rules for a qualifying person under Qualifying Person Test, earlier. Example. You are divorced and have custody of your 8-year-old child. You sign Form 8332 to allow your ex-spouse to claim the exemption. You pay child care expenses so you can work. Your child is a qualifying person and you, the custodial parent, can claim the credit for those expenses, even though your ex-spouse claims an exemption for the child. Custodial parent. You are the custodial parent if, during the year, you have custody of your child longer than your child’s other parent has custody. Divorced or separated. For purposes of determining whether your child is a qualifying person, you are considered divorced or separated if either of the following applies. 1) You are divorced or separated under a decree of divorce or separate maintenance or a written separation agreement. 2) You lived apart from your spouse for all of the last 6 months of the year. the year by 12 and multiply the result by the number of months the person lived with you. Count any partial month as a full month. Example. Joe lives in his home all year, but his son, who is a qualifying person, lives in it only from June 20 to December 31. The cost of keeping up his home for the full year is $6,600. To meet the keeping up a home test, Joe must pay more than half the cost of keeping up the home from June 1 to December 31. He figures half the cost as follows. Cost of Keeping Up Joe’s Home That He Must Pay Cost of keeping up the home for the full year . . . . . . . Divided by the number of months in a year . . . . . . . . . Monthly cost of keeping up the home . . . . . . . . . . . . Multiplied by number of months the qualifying person lived in the home . . . . . . . . . . . . . . . . . . . 5) Cost of keeping up the home while the qualifying person lived there . . . . . . . . . . . . . . . . 6) Multiplied by one-half . . . . . . . . . . . . . . . . . . . . . . . 7) Half the cost of keeping up the home while the qualifying person lived there . . . . . . . . . . . . . . . . . . . . . . . . . 1) 2) 3) 4) $ 6,600 ÷ 12 $ 550 ×7 $ 3,850 × .50 $ 1,925 Keeping Up a Home Test To claim the credit, you must keep up a home. You and one or more qualifying persons must live in the home. You are keeping up a home if you (and your spouse if you are married) pay more than half the cost of running it for the year. If you live in your home with a qualifying person for less than a full year, see Cost determined monthly, later. Home. The home you keep must be the main home for both you and the qualifying person. Your home can be the main home even if the qualifying person does not live there all year because of his or her: 1) Birth, 2) Death, or 3) Temporary absence due to: a) Sickness, b) School, c) Business, d) Vacation, e) Military service, or f) Custody agreement. Costs of keeping up a home. The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home. Costs not included. The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal. They also do not include the purchase, permanent improvement, or replacement of property. For example, you cannot include the cost of replacing a water heater. However, you can include the cost of repairing a water heater. Public assistance benefits. Payments you receive from a state that you use to keep up your home are funds provided by the state, not by you. You must provide more than half the cost of keeping up your home from your own funds to claim the credit for child and dependent care expenses. Families living together. If you and your family share living space with another family, your family and the other family are treated as separate households. (This rule applies only for purposes of the credit for child and dependent care expenses.) If you provide more than half the cost of running your household, you are keeping up a home. Cost determined monthly. If a qualified person lived with you for less than a full year, figure the cost of keeping up your home for that period. To do this, divide your cost for To meet the keeping up a home test, Joe must pay more than $1,925 to keep up his home from June 1 to December 31. Earned Income Test To claim the credit, you (and your spouse if you are married) must have earned income during the year. Earned income. Earned income includes wages, salaries, tips, other employee compensation, and net earnings from self-employment. A net loss from self-employment reduces earned income. Earned income also includes strike benefits and any disability pay you report as wages. Certain nontaxable earned income included. It also includes nontaxable earned income such as parsonage allowances, meals and lodging furnished for the convenience of the employer, voluntary salary deferrals, military basic quarters and subsistence allowances and in-kind quarters and subsistence, and military pay earned in a combat zone. Members of certain religious faiths opposed to social security. This section is for persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes. These forms are: • Form 4361, Application for Exemption From Self-Employment Tax for Use by Ministers, Members of Religious Orders and Christian Science Practitioners, or • Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, for use by members of recognized religious groups. Each form is discussed in this section in terms of what is or is not earned income for purposes of the child and Page 5 Figure B. Is a Child of Divorced or Separated Parents a Qualifying Person? Start Here Is the child’s exemption claimed under a multiple support agreement? No Yes Were you divorced or legally separated, or did you live apart from your spouse the last 6 months of the year? Yes No Did you and the other parent together have custody of the child for more than half of the year? Yes No Did you and the other parent together provide more than half the child’s support for the year? Yes No Do not use this chart. Determine whether your child is a qualifying person using the regular rules. (See Qualifying Person Test.) Did you have custody of the child for more of the year than the other parent? No Yes Can you claim the child’s exemption? No Yes Could you claim the child’s exemption except you signed an agreement to let the other parent claim it? No Yes No Could you claim the child’s exemption except the other parent claims it under a pre-1985 agreement? Yes Yes Was the child capable of caring for himself or herself? No No Was the child under age 13 when the care was provided? Yes This child is a qualifying person. This child is not a qualifying person. Page 6 dependent care credit. For information on the use of these forms, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers. Form 4361. Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee are earned income. This includes wages, salaries, tips, and other employee compensation. Other employee compensation includes earned income that is not taxable such as housing allowances or the rental value of a parsonage that you receive as part of your pay for services as an employee. However, amounts you received for ministerial duties, but not as an employee, are not net earnings from self-employment for purposes of the child and dependent care credit. Examples include fees for performing marriages and honoraria for delivering speeches. Any income or loss from these activities is not taken into account in figuring earned income. Any amount you received for work that is not related to your ministerial duties is earned income. Form 4029. Whether or not you have an approved Form 4029, all wages, salaries, tips, and other employee compensation are earned income. However, amounts you received as a self-employed individual are not net earnings from self-employment for purposes of the child and dependent care credit, and are not taken into account in figuring earned income. What is not earned income? Earned income does not include pensions or annuities, social security payments, workers’ compensation, interest, dividends, or unemployment compensation. It also does not include scholarship or fellowship grants, except amounts paid to you (and reported on Form W–2) for teaching, research, or other services. Rule for student-spouse or spouse not able to care for self. Your spouse is treated as having earned income for any month that he or she is: 1) A full-time student, or 2) Physically or mentally not able to care for himself or herself. Figure the earned income of the nonworking spouse, described under (1) or (2) above, as shown under Earned Income Limit under How To Figure the Credit, later. This rule applies to only one spouse for any one month. If, in the same month, both you and your spouse do not work and are either full-time students or physically or mentally not able to care for yourselves, only one of you can be treated as having earned income in that month. Full-time student. You are a full-time student if you are enrolled at and attend a school for the number of hours or classes that the school considers full time. You must have been a student for some part of each of 5 calendar months during the year. (The months need not be consecutive.) If you attend school only at night, you are not a full-time student. However, as part of your full-time course of study, you may attend some night classes. School. The term “school” includes elementary schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence schools, and night schools. Work-Related Expense Test Child and dependent care expenses must be work related to qualify for the credit. Expenses are considered work related only if both of the following are true. • They allow you (and your spouse if you are married) to work or look for work. • They are for a qualifying person’s care. Working or Looking for Work To be work related, your expenses must allow you to work or look for work. If you are married, generally both you and your spouse must work or look for work. Your spouse is treated as working during any month he or she is a full-time student or is physically or mentally not able to care for himself or herself. Your work can be for others or in your own business or partnership. It can be either full time or part time. Work also includes actively looking for work. However, if you do not find a job and have no earned income for the year, you cannot take this credit. See Earned Income Test, earlier. Whether your expenses allow you to work or look for work depends on the facts. For example, the cost of a baby sitter while you and your spouse go out to eat is not normally a work-related expense. An expense is not considered work related merely because you had it while you were working. The purpose of the expense must be to enable you to work. Volunteer work. You are not gainfully employed if you do unpaid volunteer work or volunteer work for a nominal salary. Work for part of year. If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. For example, if you work all year and pay care expenses of $200 a month ($2,400 for the year), all the expenses are work related. However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $200 a month, your work-related expenses are limited to $500 (21/2 months × $200). Payments while you are out sick. Do not count as work-related expenses amounts you pay for child and dependent care while you are off work because of illness. These amounts are not paid to allow you to work. This applies even if you get sick pay and are still considered an employee. Page 7 Care of a Qualifying Person To be work related, your expenses must be to provide care for a qualifying person. You do not have to choose the least expensive way of providing the care. Expenses are for the care of a qualifying person only if their main purpose is the person’s well-being and protection. Expenses for household services qualify if part of the services is for the care of qualifying persons. See Household Services, later. Expenses not for care. Expenses for care do not include amounts you pay for food, clothing, education, and entertainment. However, you can include small amounts paid for these items if they are incident to and cannot be separated from the cost of caring for the qualifying person. Otherwise, see the discussion of Expenses partly work related, later. Education. Expenses to attend first grade or a higher grade are not expenses for care. Do not use these expenses to figure your credit. Example 1. You take your 3-year-old child to a nursery school that provides lunch and a few educational activities as part of its preschool child-care service. You can count the total cost when you figure the credit. Example 2. You place your 10-year-old child in a boarding school so you can work full time. Only the part of the boarding school expense that is for the care of your child is a work-related expense. You can count that part of the expense in figuring your credit if it can be separated from the cost of education. You cannot count any part of the amount you pay the school for your child’s education. Care outside your home. You can count the cost of care provided outside your home if the care is for your dependent under age 13, or any other qualifying person who regularly spends at least 8 hours each day in your home. Dependent care center. You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers. A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit. Camp. The cost of sending your child to an overnight camp is not considered a work-related expense. Transportation. The cost of getting a qualifying person from your home to the care location and back, or from the care location to school and back, is not considered a work-related expense. This includes the costs of bus, subway, taxi, or private car. Also, if you pay the transportation cost for the care provider to come to your home, you cannot count this cost as a work-related expense. Page 8 Household Services Expenses you pay for household services meet the work-related expense test if they are at least partly for the well-being and protection of a qualifying person. Definition. Household services are ordinary and usual services done in and around your home that are necessary to run your home. They include the services of a housekeeper, maid, or cook. However, they do not include the services of a chauffeur, bartender, or gardener. Housekeeper. In this publication, the term housekeeper refers to any household employee whose services include the care of a qualifying person. Expenses partly work related. If part of an expense is work related (for either household services or the care of a qualifying person) and part is for other purposes, you have to divide the expense. To figure your credit, count only the part that is work related. However, you do not have to divide the expense if only a small part is for other purposes. Example. You pay a housekeeper to care for your 9-year-old and 15-year-old children so you can work. The housekeeper spends most of the time doing normal household work and spends 30 minutes a day driving you to and from work. You do not have to divide the expenses. You can treat the entire expense of the housekeeper as work related because the time spent driving is minimal. Nor do you have to divide the expenses between the two children, even though the expenses are partly for the 15-year-old child who is not a qualifying person, because the expense is also partly for the care of your 9-year-old child, who is a qualifying person. However, the dollar limit (discussed later) is based on one qualifying person, not two. Meals and lodging provided for housekeeper. 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. 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. Taxes paid on wages. The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. For more information on a household employer’s tax responsibilities, see Employment Taxes for Household Employers, later. Payments to Relatives You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. However, do not count any amounts you pay to: 1) A dependent for whom you (or your spouse if you are married) can claim an exemption, or 2) Your child who is under age 19 at the end of the year, even if he or she is not your dependent. If you cannot provide all of the information or the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information. Getting the information. You can use Form W–10, Dependent Care Provider’s Identification and Certification, to request the required information from the care provider. If you do not use Form W – 10, you can get the information from: 1) A copy of the provider’s social security card, 2) A copy of the provider’s driver’s license (in a state where the license includes the social security number), 3) A copy of the provider’s completed Form W –4, Employee’s Withholding Allowance Certificate, if he or she is your household employee, 4) A copy of the statement furnished by your employer if the provider is your employer’s dependent care plan, or 5) A letter or invoice from the provider if it shows the necessary information. You should keep this information with your tax records. Do not send Form W –10 (or other docuRECORDS ment containing this information) to the Internal Revenue Service. Due diligence. If the care provider information you give is incorrect or incomplete, your credit may not be allowed. However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit. You can show due diligence by getting and keeping the provider’s completed Form W – 10 or one of the other sources of information listed earlier. Care providers can be penalized if they do not provide this information to you or if they provide incorrect information. Provider refusal. If the provider refuses to give you the identifying information, you should report whatever information you have (such as the name and address) on the form you use to claim the credit. Enter “See Page 2” in the columns calling for the information you do not have. On the bottom of page 2, explain that you requested the information from the care provider, but the provider did not give you the information. This statement will show that you used due diligence in trying to furnish the necessary information. Joint Return Test Generally, married couples must file a joint return to take the credit. 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. Legally separated. You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. You are eligible to take the credit on a separate return. Married and living apart. You are not considered married and are eligible to take the credit if all the following apply. 1) You file a separate return. 2) Your home is the home of a qualifying person for more than half the year. 3) You pay more than half the cost of keeping up your home for the year. 4) Your spouse does not live in your home for the last 6 months of the year. Death of spouse. If your spouse died during the year and you do not remarry before the end of the year, you generally must file a joint return to take the credit. If you do remarry before the end of the year, the credit can be claimed on your deceased spouse’s separate return. Provider Identification Test You must identify all persons or organizations that provide care for your child or dependent. Use Part I of Form 2441 or Schedule 2 (Form 1040A) to show the information. Information needed. To identify the care provider, you must give the provider’s: 1) Name, 2) Address, and 3) Taxpayer identification number. 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 (EIN). You do not have to show the taxpayer identification number if the care provider is one of certain tax-exempt organizations (such as a church or school). In this case, print “Tax-Exempt” in the space where the tax form calls for the number. How To Figure the Credit Your credit is a percentage of your work-related expenses. Your expenses are subject to the earned income limit and the dollar limit. The percentage is based on your adjusted gross income. Page 9 Figuring Total Work-Related Expenses To figure the credit for 2001 work-related expenses, count only those you paid by December 31, 2001. Expenses prepaid in an earlier year. If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Claim the expenses for the later year as if they were actually paid in that later year. Expenses not paid until the following year. Do not count 2000 expenses that you paid in 2001 as work-related expenses for 2001. You may be able to claim an additional credit for them on your 2001 return, but you must figure it separately. See Payments for previous year’s expenses under Amount of Credit, later. If you had expenses in 2001 that you did not pay TIP until 2002, you cannot count them when figuring your 2001 credit. You may be able to claim a credit for them on your 2002 return. Expenses reimbursed. If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you cannot count the expenses that are reimbursed as work-related expenses. Example. You paid work-related expenses of $3,000. You are reimbursed $2,000 by a state social services agency. You can use only $1,000 to figure your credit. Medical expenses. Some expenses for the care of qualifying persons who are not able to care for themselves may qualify as work-related expenses and also as medical expenses. You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction. If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit. For information on medical expenses, see Publication 502, Medical and Dental Expenses. 2) The fair market value of care in a day-care facility provided or sponsored by your employer. Your salary may have been reduced to pay for these benefits. If you received benefits, they should be shown on your Form W –2, Wage and Tax Statement. See Statement for employee, later. Exclusion. If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer can tell you whether your benefit plan qualifies. If it does, you must complete Part III of either Form 2441 or Schedule 2 (Form 1040A) to claim the exclusion even if you cannot take the credit. You cannot use Form 1040EZ. The amount you can exclude is limited to the smallest of: 1) The total amount of dependent care benefits you received during the year, 2) The total amount of qualified expenses you incurred during the year, 3) Your earned income, 4) Your spouse’s earned income, or 5) $5,000 ($2,500 if married filing separately). Statement for employee. Your employer must give you a Form W–2 (or similar statement), showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Your employer will also include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W–2. Forfeitures. Forfeitures are amounts credited to your dependent care benefit account (flexible spending account) and included in the amount shown in box 10 of your Form W –2, but not received because you did not incur the expense. When figuring your exclusion, subtract any forfeitures from the total dependent care benefits reported by your employer. To do this, enter the forfeited amount on line 11 of Form 2441 or Schedule 2 (Form 1040A). CAUTION ! Forfeitures do not include amounts that you expect to receive in the future. CAUTION ! Amounts excluded from your income under your employer’s dependent care benefits plan cannot be used to claim a medical expense deduction. Effect of exclusion. If you exclude dependent care benefits from your income, the amount of the excluded benefits: 1) Is not included in your work-related expenses, and 2) Reduces the dollar limit, discussed later. Employer-Provided Dependent Care Benefits Dependent care benefits include: 1) Amounts your employer pays directly to either you or your care provider for the care of your qualifying person while you work, and Page 10 Earned Income Limit The amount of work-related expenses you use to figure your credit cannot be more than: 1) Your earned income for the year, if you are single at the end of the year, or 2) The smaller of your or your spouse’s earned income for the year, if you are married at the end of the year. Earned income is defined under Earned Income Test, earlier. Student-spouse or spouse not able to care for self. Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. His or her earned income for each month is considered to be at least $200 if there is one qualifying person in your home, or at least $400 if there are two or more. Spouse works. If your spouse works during that month, use the higher of $200 (or $400) or his or her actual earned income for that month. Spouse qualifies for part of month. If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $200 (or $400) still applies for that month. Both spouses qualify. If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $200 (or $400) for that month. Example. Jim works and keeps up a home for himself and his wife Sharon. Because of an accident, Sharon is not able to care for herself for 11 months during the tax year. During the 11 months, Jim pays $2,750 of work-related expenses for Sharon’s care. These expenses also qualify as medical expenses. Their adjusted gross income is $29,000 and the entire amount is Jim’s earned income. Jim and Sharon’s earned income limit is the smallest of the following amounts. Jim and Sharon’s Earned Income Limit 1) Work-related expenses Jim paid . . . . . . . . . . . . . . . 2) Jim’s earned income . . . . . . . . . . . . . . . . . . . . . . . 3) Income considered earned by Sharon (11 × $200) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,750 $29,000 $ 2,200 TIP For purposes of item (2), use your spouse’s earned income for the entire year, even if you were married for only part of the year. Example. You remarried on December 3. Your earned income for the year was $18,000. Your new spouse’s earned income for the year was $2,000. You paid work-related expenses of $3,000 for the care of your 5-year-old child and qualified to claim the credit. The amount of expenses you use to figure your credit cannot be more than $2,000 (the smaller of your earned income or that of your spouse). Separated spouse. If you are legally separated or married and living apart from your spouse (as described under Joint Return Test, earlier), you are not considered married for purposes of the earned income limit. Use only your income in figuring the earned income limit. Surviving spouse. If your spouse died during the year and you file a joint return as a surviving spouse, you are not considered married for purposes of the earned income limit. Use only your income in figuring the earned income limit. Community property laws. You should disregard community property laws when you figure earned income for this credit. Self-employment earnings. If you are self-employed, include your net earnings in earned income. For purposes of the child and dependent care credit, net earnings from self-employment generally means the amount from line 3 of Schedule SE (either Section A or Section B) minus any deduction for self-employment tax on line 27 of Form 1040. Include your self-employment earnings in earned income, even if they are less than $400 and you did not file Schedule SE. Statutory employee. If you filed Schedule C or C–EZ to report income as a statutory employee, also include as earned income the amount from line 1 of that Schedule C or C–EZ. Net loss. You must reduce your earned income by any net loss from self-employment. Optional method if earnings are low or a net loss. If your net earnings from self-employment are low or you have a net loss, you may be able to figure your net earnings by using an optional method instead of the regular method. Get Publication 533, Self-Employment Tax, for details. If you use an optional method to figure net earnings for self-employment tax purposes, include those net earnings in your earned income for this credit. In this case, subtract any deduction you claimed on Form 1040, line 27, from the total of the amounts on Schedule SE, Section B, lines 3 and 4b, to figure your net earnings. Jim and Sharon can use $2,200 to figure the credit and treat the balance of $550 ($2,750 − $2,200) as a medical expense. However, if they use the $2,750 first as a medical expense, they cannot use any part of that amount to figure the credit. Dollar Limit There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. This limit is $2,400 for one qualifying person, or $4,800 for two or more qualifying persons. If you paid work-related expenses for the care of two or more qualifying persons, the $4,800 limit does not need to be divided equally among them. For example, if your work-related expenses for the care of one qualifying person are $2,000 and your work-related expenses for another qualifying person are $2,800, you can use the total, $4,800, when figuring the credit. TIP Yearly limit. The dollar limit is a yearly limit. The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Use the $2,400 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Use $4,800 if you paid work-related exPage 11 penses for the care of more than one qualifying person at any time during the year. Example. In July of this year, to permit your spouse to begin a new job, you enrolled your 3-year-old daughter in a nursery school that provides preschool child care. You paid $300 per month for the child care. You can use the full $1,800 you paid ($300 × 6 months) as qualified expenses since it is not more than the $2,400 yearly limit. Reduced Dollar Limit If you received dependent care benefits from your employer that you exclude from your income, you must subtract that amount from the dollar limit that applies to you. Your reduced dollar limit is figured on lines 20 through 24 of Form 2441 or Schedule 2 (Form 1040A). See Employer-Provided Dependent Care Benefits, earlier, for information on excluding these benefits. Example. George is a widower with one child and earns $24,000 a year. He pays work-related expenses of $1,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. His employer pays an additional $1,000 under a qualified dependent care benefit plan. This $1,000 is excluded from George’s income. Although the dollar limit for his work-related expenses is $2,400 (one qualifying person), George figures his credit on only $1,400 of the $1,900 work-related expenses he paid. This is because his dollar limit is reduced as shown next. George’s Reduced Dollar Limit 1) Maximum allowable expenses for one qualifying person . . . . . . . . . . . . . . . . . . . . . . . . 2) Minus: Dependent care benefits George excludes from income . . . . . . . . . . . . . . . . . . . . . 3) Reduced dollar limit on expenses George can use for the credit . . . . . . . . . . . . . . . . . . . . . $2,400 −1,000 $1,400 Payments for previous year’s expenses. If you had work-related expenses in 2000 that you paid in 2001, you may be able to increase the credit on your 2001 return. Attach a statement to your form showing how you figured the additional amount from 2000. Then above line 9 on Form 2441 or Schedule 2 (Form 1040A), print “CPYE” and the amount of the credit. To the right of that amount, also write the name and taxpayer identification number of the person for whom you paid the prior year’s expenses. Then add this credit to the amount on line 9, and replace the amount on line 9 with the total. Use the following worksheet to figure the credit you may claim for 2000 expenses paid in 2001. Worksheet for 2000 Expenses Paid in 2001 1) 2) 3) 4) Enter your 2000 qualified expenses paid in 2000 . . . . . Enter your 2000 qualified expenses paid in 2001 . . . . . Add the amounts on lines 1 and 2 . . . . . . . . . . . . . . . Enter $2,400 if care was for one qualifying person ($4,800 if for two or more) . . . . . . . . . . . . . . . . . . . . 5) Enter any dependent care benefits received for 2000 and excluded from your income (from line 18 of 2000 Form 2441 or Schedule 2 (Form 1040A)) . . . . . . . . . . . . . . 6) Subtract amount on line 5 from amount on line 4 and enter the result . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7) Compare your earned income for 2000 and your spouse’s earned income for 2000 and enter the smaller amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8) Compare the amounts on lines 3, 6, and 7 and enter the smallest amount . . . . . . . . . . . . . . . . . . . . . . . . 9) Enter the amount on which you figured the credit for 2000 (from line 6 of 2000 Form 2441 or Schedule 2 (Form 1040A)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10) Subtract amount on line 9 from amount on line 8 and enter the result. If zero or less, stop here. You cannot increase your credit by any previous year’s expenses . . 11) Enter your 2000 adjusted gross income (from line 34 of your 2000 Form 1040 or line 20 of your 2000 Form 1040A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12) Find your 2000 adjusted gross income in the table of percentages (shown earlier) and enter the corresponding decimal amount here . . . . . . . . . . . . . . . . . . . . . . . . 13) Multiply line 10 by line 12. Add this amount to your 2001 credit and enter the total on line 9 of your 2001 Form 2441 or Schedule 2 (Form 1040A). Above line 9, print “CPYE,” the amount of this credit, and the name and taxpayer identification number of the person for whom you paid the prior year’s expenses . . . . . . . . . . . . . . . Amount of Credit To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage. This percentage depends on your adjusted gross income shown on line 34 of Form 1040 or line 20 of Form 1040A. The following table shows the percentage to use based on adjusted gross income. IF your adjusted gross income is: Over But not over $ 0 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 $10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 28,000 No limit THEN the percentage is: 30% 29% 28% 27% 26% 25% 24% 23% 22% 21% 20% Example. In 2000, Sam and Kate had child-care expenses of $2,600 for their 12-year-old child. Of the $2,600, they paid $2,000 in 2000 and $600 in 2001. Their adjusted gross income for 2000 was $30,000. Sam’s earned income of $14,000 was less than Kate’s earned income. A credit for their 2000 expenses paid in 2001 is not allowed in 2000. It is allowed for the 2001 tax year, but they must use their adjusted gross income for 2000 to compute the amount. The worksheet they use to figure this credit is shown next. Sam & Kate’s Worksheet for 2000 Expenses Paid in 2001 Enter your 2000 qualified expenses paid in 2000 . . . Enter your 2000 qualified expenses paid in 2001 . . . Add the amounts on lines 1 and 2 . . . . . . . . . . . . . Enter $2,400 if care was for one qualifying person ($4,800 if for two or more) . . . . . . . . . . . . . . . . . . 5) Enter any dependent care benefits received for 2000 and excluded from your income (from line 18 of 2000 Form 2441 or Schedule 2 (Form 1040A)) . . . . . . . . 1) 2) 3) 4) .. .. .. .. .. $ 2,000 600 $ 2,600 $ 2,400 0 Page 12 6) Subtract amount on line 5 from amount on line 4 and enter the result . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7) Compare your earned income for 2000 and your spouse’s earned income for 2000 and enter the smaller amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8) Compare the amounts on lines 3, 6, and 7 and enter the smallest amount . . . . . . . . . . . . . . . . . . . . 9) Enter the amount on which you figured the credit for 2000 (from line 6 of 2000 Form 2441 or Schedule 2 (Form 1040A)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10) Subtract amount on line 9 from amount on line 8 and enter the result. If zero or less, stop here. You cannot increase your credit by any previous year’s expenses . . 11) Enter your 2000 adjusted gross income (from line 34 of your 2000 Form 1040 or line 20 of your 2000 Form 1040A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12) Find your 2000 adjusted gross income in the table of percentages (shown earlier) and enter the corresponding decimal amount here . . . . . . . . . . . . . . 13) Multiply line 10 by line 12. Add this amount to your 2001 credit and enter the total on line 9 of your 2001 Form 2441 or Schedule 2 (Form 1040A). Above line 9, print “CPYE,” the amount of this credit, and the name and taxpayer identification number of the person for whom you paid the prior year’s expenses . . . . . . . . . . . . . . . $ 2,400 $14,000 $ 2,400 2,000 400 $30,000 .20 $ 80 employer identification number (EIN) and you may have to pay employment taxes. If the individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. Self-employed persons who are in business for themselves are not household employees. Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of business. If you use a placement agency that exercises control over what work is done and how it will be done by a babysitter or companion who works in your home, that person is not your employee. This control could include providing rules of conduct and appearance and requiring regular reports. In this case, you do not have to pay employment taxes. But, if an agency merely gives you a list of sitters and you hire one from that list, the sitter may be your employee. If you have a household employee, you may be subject to: 1) Social security and Medicare taxes, 2) Federal unemployment tax, and 3) Federal income tax withholding. Social security and Medicare taxes are generally withheld from the employee’s pay and matched by the employer. Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Federal income tax is withheld from the employee’s total pay if the employee asks you to do so and you agree. For more information on a household employer’s tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its instructions. State employment tax. You may also have to pay state unemployment tax. Contact your state unemployment tax office for information. You should also find out whether you need to pay or collect other state employment taxes or carry worker’s compensation insurance. A list of state unemployment tax agencies, including addresses and phone numbers, is in Publication 926. Sam and Kate add the $80 from line 13 of this worksheet to their 2001 credit and enter the total on line 9 of their Schedule 2 (Form 1040A). They enter “CPYE $80” and their child’s name and SSN above line 9. How To Claim the Credit To claim the credit, you can file Form 1040 or Form 1040A. You cannot claim the credit on Form 1040EZ. Form 1040. You must Form 2441 and attach it to your Form 1040. Enter the credit on line 44 of your Form 1040. Form 1040A. You must complete Schedule 2 (Form 1040A) and attach it to your Form 1040A. Enter the credit on line 27 of your Form 1040A. Limit on credit. The amount of credit you can claim is limited to the amount of your regular tax (after reduction by any allowable foreign tax credit) plus your alternative minimum tax, if any. For more information, see the instructions for Form 2441 or Schedule 2 (Form 1040A). Tax credit not refundable. You cannot get a refund for any part of the credit that is more than this limit. Recordkeeping.You should keep records of your work-related expenses. Also, if your depenRECORDS dent or spouse is not able to care for himself or herself, your records should show both the nature and length of the disability. Other records you should keep to support your claim for the credit are described under Provider Identification Test, earlier. Examples The following examples show how to figure the credit for child and dependent care expenses. A filled-in page 1 of Schedule 2 (Form 1040A) that illustrates Example 1 and a filled-in Form 2441 (filed with Form 1040) that illustrates Example 2 are shown after the examples. Employment Taxes for Household Employers If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer. If you are a household employer, you will need an Example 1. Child Care — Two Children Jerry and Ann Jones are married and keep up a home for their two preschool children, ages 2 and 4. They claim their children as dependents and file a joint return using Form 1040A. Their adjusted gross income (AGI) is $27,500. Jerry earned $12,500 and Ann earned $15,000. Page 13 During the year, they pay work-related expenses of $3,000 for child care for their son Daniel at a neighbor’s home and $2,200 for child care for their daughter Amy at Pine Street Nursery School. They figure their credit on Schedule 2 as follows. Child care by neighbor . . . . . . . . . . . . . . . . . . Child care by nursery school . . . . . . . . . . . . . . Total work-related expenses . . . . . . . . . . . . . . Dollar limit . . . . . . . . . . . . . . . . . . . . . . . . . . Lesser of expenses paid ($5,200) or dollar limit ($4,800) . . . . . . . . . . . . . . . . . . . . . . . . . . Percentage for AGI of $27,500 . . . . . . . . . . . . Amount of credit (21% of $4,800) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,000 +2,200 $5,200 $4,800 $4,800 .21 $1,008 ..... ..... ..... Joan’s younger child (Susan) stays at her employer’s on-site child-care center while she works. The benefits from this child-care center qualify to be excluded from her income. Her employer reports the value of this service as $3,000 for the year. This $3,000 is shown in box 10 of her Form W–2, but is not included in taxable wages in box 1. A neighbor cares for Joan’s older child (Seth) after school, on holidays, and during the summer. She pays her neighbor $2,400 for this care. Joan figures her credit on Form 2441 as follows. Work-related expenses Joan paid . . . . . . . . . . Dollar limit . . . . . . . . . . . . . . . . . . . . . . . . . . Minus dependent care benefits excluded from Joan’s income . . . . . . . . . . . . . . . . . . . . . . Reduced dollar limit . . . . . . . . . . . . . . . . . . . . Lesser of expenses paid ($2,400) or dollar limit ($1,800) . . . . . . . . . . . . . . . . . . . . . . . . . . Percentage for AGI of $29,000 . . . . . . . . . . . . Amount of credit (20% of $1,800) . . . . . . . . . . ..... ..... ..... ..... ..... ..... ..... $2,400 $4,800 −3,000 $1,800 $1,800 .20 $ 360 Example 2. Dependent Care Benefits Joan Thomas is divorced and has two children, ages 3 and 9. She works at ACME Computers. Her adjusted gross income (AGI) is $29,000, and the entire amount is earned income. Page 14 Schedule 2 (Form 1040A) Department of the Treasury—Internal Revenue Service Child and Dependent Care Expenses for Form 1040A Filers (99) 2001 246 ● Earned Income (c) Identifying number (SSN or EIN) OMB No. 1545-0085 Your social security number Name(s) shown on Form 1040A JERRY & ANN ● Dependent Care Benefits ● Qualifying Person(s) JONES ● Qualified Expenses 00 2468 Before you begin: You need to understand the following terms. See Definitions on page 1 of the separate instructions. (a) Care provider’s name (b) Address (number, street, apt. no., city, state, and ZIP code) (d) Amount paid (see instructions) Part I Persons or organizations who provided the care You must complete this part. 1 413 MAPLE STREET ANYTOWN, PA 18605 PINE STREET 706 PINE STREET NURSERY SCHOOL ANYTOWN, PA 18605 (If you need more space, use the bottom of page 2.) SUE SMITH Did you receive dependent care benefits? No Yes 132 - 00 - 5467 10 - 6754321 3,000 2,200 Complete only Part II below. Complete Part III on the back next. Caution. If the care was provided in your home, you may owe employment taxes. If you do, you must use Form 1040. See Schedule H and its instructions for details. Part II Credit for child and dependent care expenses 2 Information about your qualifying person(s). If you have more than two qualifying persons, see the instructions. (a) Qualifying person’s name First Last (b) Qualifying person’s social security number (c) Qualified expenses you incurred and paid in 2000 for the person listed in column (a) DANIEL JONES 123 00 9876 3,000 2,200 123 00 6789 AMY JONES 3 Add the amounts in column (c) of line 2. Do not enter more than $2,400 for one qualifying person or $4,800 for two or more persons. If you completed Part III, enter the amount from line 24. 3 4 Enter YOUR earned income. 5 If married filing a joint return, enter YOUR SPOUSE’S earned income (if your spouse was a student or was disabled, see the instructions); all others, enter the amount from line 4. 6 Enter the smallest of line 3, 4, or 5. 7 7 Enter the amount from Form 1040A, line 20. 27,500 Enter on line 8 the decimal amount shown below that applies to the 8 amount on line 7. If line 7 is— But not over Over $0—10,000 10,000—12,000 12,000—14,000 14,000—16,000 16,000—18,000 18,000—20,000 Decimal amount is .30 .29 .28 .27 .26 .25 If line 7 is— But not over Over $20,000—22,000 22,000—24,000 24,000—26,000 26,000—28,000 28,000—No limit Decimal amount is .24 .23 .22 .21 .20 4,800 12,500 4 5 6 15,000 4,800 8 . 21 9 Multiply line 6 by the decimal amount on line 8. Enter the result here and on Form 1040A, line 27. But if this amount is more than the amount on Form 1040A, line 26, or you paid 1999 expenses in 2000, see the instructions for the amount to enter on line 27. For Paperwork Reduction Act Notice, see Form 1040A instructions. Cat. No. 10749I 9 1,008 Schedule 2 (Form 1040A) 2001 Page 15 Form 2441 Child and Dependent Care Expenses Attach to Form 1040. See separate instructions. OMB No. 1545-0068 Department of the Treasury Internal Revenue Service (99) Attachment Sequence No. 2001 21 3436 Name(s) shown on Form 1040 Your social security number Joan Thomas 559 00 Before you begin: You need to understand the following terms. See Definitions on page 1 of the instructions. ● Dependent Care Benefits Part I 1 ● Qualifying Person(s) ● Qualified Expenses ● Earned Income Persons or Organizations Who Provided the Care—You must complete this part. (If you need more space, use the bottom of page 2.) (b) Address (number, street, apt. no., city, state, and ZIP code) (c) Identifying number (SSN or EIN) (d) Amount paid (see instructions) (a) Care provider’s name Pat Green ACME Computers 12 Ash Avenue Hometown, TX 75240 (See W-2) 240-00-3811 2,400 Did you receive dependent care benefits? No Yes Complete only Part II below. Complete Part III on the back next. Caution: If the care was provided in your home, you may owe employment taxes. See the instructions for Form 1040, line 56. Part II 2 Credit for Child and Dependent Care Expenses (a) Qualifying person’s name First Last (b) Qualifying person’s social security number (c) Qualified expenses you incurred and paid in 2001 for the person listed in column (a) Information about your qualifying person(s). If you have more than two qualifying persons, see the instructions. Seth Susan 3 Thomas Thomas 559 00 1234 559 00 5678 2,400 Add the amounts in column (c) of line 2. Do not enter more than $2,400 for one qualifying person or $4,800 for two or more persons. If you completed Part III, enter the amount from line 24 Enter YOUR earned income If married filing a joint return, enter YOUR SPOUSE’S earned income (if your spouse was a student or was disabled, see the instructions); all others, enter the amount from line 4 Enter the smallest of line 3, 4, or 5 3 4 1,800 29,000 4 5 5 6 29,000 1,800 6 7 8 29,000 7 Enter the amount from Form 1040, line 34 Enter on line 8 the decimal amount shown below that applies to the amount on line 7 If line 7 is— But not Over over $0—10,000 10,000—12,000 12,000—14,000 14,000—16,000 16,000—18,000 18,000—20,000 Decimal amount is .30 .29 .28 .27 .26 .25 If line 7 is— But not Over over $20,000—22,000 22,000—24,000 24,000—26,000 26,000—28,000 28,000—No limit Decimal amount is .24 .23 .22 .21 .20 8 . 20 9 Multiply line 6 by the decimal amount on line 8. Enter the result here and on Form 1040, line 44. But if this amount is more than the amount on Form 1040, line 42, minus any amount on line 43, or you paid 2000 expenses in 2001, see the instructions for the amount to enter on line 44 9 Form For Paperwork Reduction Act Notice, see page 3 of the instructions. Cat. No. 11862M 360 2441 (2001) Page 16 Form 2441 (2001) Page 2 Part III Dependent Care Benefits 10 Enter the total amount of dependent care benefits you received for 2001. This amount should be shown in box 10 of your W-2 form(s). Do not include amounts that were reported to you as wages in box 1 of Form(s) W-2 Enter the amount forfeited, if any. See the instructions Subtract line 11 from line 10 Enter the total amount of qualified expenses incurred in 2001 for the care of the qualifying person(s) Enter the smaller of line 12 or 13 Enter YOUR earned income If married filing a joint return, enter YOUR SPOUSE’S earned income (if your spouse was a student or was disabled, see the instructions for line 5); if married filing a separate return, see the instructions for the amount to enter; all others, enter the amount from line 15 Enter the smallest of line 14, 15, or 16 10 11 12 3,000 11 12 13 3,000 13 14 15 5,400 3,000 29,000 14 15 16 16 17 29,000 3,000 17 18 Excluded benefits. Enter here the smaller of the following: ● The amount from line 17 or ● $5,000 ($2,500 if married filing a separate return and you were required to enter your spouse’s earned income on line 16). Taxable benefits. Subtract line 18 from line 12. Also, include this amount on Form 1040, line 7. On the dotted line next to line 7, enter “DCB” 18 3,000 19 19 -0- To claim the child and dependent care credit, complete lines 20–24 below. 20 21 22 Enter $2,400 ($4,800 if two or more qualifying persons) Enter the amount from line 18 Subtract line 21 from line 20. If zero or less, stop. You cannot take the credit. Exception. If you paid 2000 expenses in 2001, see the instructions for line 9 Complete line 2 on the front of this form. Do not include in column (c) any benefits shown on line 18 above. Then, add the amounts in column (c) and enter the total here Enter the smaller of line 22 or 23. Also, enter this amount on line 3 on the front of this form and complete lines 4–9 20 21 4,800 3,000 22 1,800 23 23 2,400 24 24 1,800 Form 2441 (2001) Page 17 How To Get Tax Help You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get more information from the IRS in several ways. By selecting the method that is best for you, you will have quick and easy access to tax help. Contacting your Taxpayer Advocate. If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate. The Taxpayer Advocate represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review. To contact your Taxpayer Advocate: TaxFax Service. Using the phone attached to your fax machine, you can receive forms and instructions by calling 703– 368– 9694. Follow the directions from the prompts. When you order forms, enter the catalog number for the form you need. The items you request will be faxed to you. For help with transmission problems, call the FedWorld Help Desk at 703–487–4608. Phone. Many services are available by phone. • Ordering forms, instructions, and publications. Call 1–800–829–3676 to order current and prior year forms, instructions, and publications. • Asking tax questions. Call the IRS with your tax questions at 1–800–829– 1040. • TTY/TDD equipment. If you have access to TTY/ TDD equipment, call 1–800–829–4059 to ask tax questions or to order forms and publications. • Call the Taxpayer Advocate at 1 –877–777–4778. • Call the IRS at 1–800–829–1040. • Call, write, or fax the Taxpayer Advocate office in your area. • TeleTax topics. Call 1–800 –829 –4477 to listen to pre-recorded messages covering various tax topics. Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers, we evaluate the quality of our telephone services in several ways. • Call 1–800–829– 4059 if you are a TTY/TDD user. For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS. Free tax services. To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics. Personal computer. With your personal computer and modem, you can access the IRS on the Internet at www.irs.gov. While visiting our web site, you can: • A second IRS representative sometimes monitors live telephone calls. That person only evaluates the IRS assistor and does not keep a record of any taxpayer’s name or tax identification number. • We sometimes record telephone calls to evaluate IRS assistors objectively. We hold these recordings no longer than one week and use them only to measure the quality of assistance. • We value our customers’ opinions. Throughout this year, we will be surveying our customers for their opinions on our service. Walk-in. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and publications. Some IRS offices, libraries, grocery stores, copy centers, city and county governments, credit unions, and office supply stores have an extensive collection of products available to print from a CD-ROM or photocopy from reproducible proofs. Also, some IRS offices and libraries have the Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes. Mail. You can send your order for forms, instructions, and publications to the Distribution Center nearest to you and receive a response within 10 workdays after your request is received. Find the address that applies to your part of the country. • Find answers to questions you may have. • Download forms and publications or search for forms and publications by topic or keyword. • View forms that may be filled in electronically, print the completed form, and then save the form for recordkeeping. • View Internal Revenue Bulletins published in the last few years. • Search regulations and the Internal Revenue Code. • Receive our electronic newsletters on hot tax issues and news. • Get information on starting and operating a small business. You can also reach us with your computer using File Transfer Protocol at ftp.irs.gov. Page 18 • Western part of U.S.: Western Area Distribution Center Rancho Cordova, CA 95743–0001 • Prior-year tax forms and instructions. • Popular tax forms that may be filled in electronically, printed out for submission, and saved for recordkeeping. • Central part of U.S.: Central Area Distribution Center P.O. Box 8903 Bloomington, IL 61702–8903 • Internal Revenue Bulletins. The CD-ROM can be purchased from National Technical Information Service (NTIS) by calling 1–877–233 –6767 or on the Internet at www.irs.gov. The first release is available in mid-December and the final release is available in late January. IRS Publication 3207, Small Business Resource Guide, is an interactive CD-ROM that contains information important to small businesses. It is available in mid-February. You can get one free copy by calling 1–800– 829 – 3676 or visiting the IRS web site at www.irs.gov. • Eastern part of U.S. and foreign addresses: Eastern Area Distribution Center P.O. Box 85074 Richmond, VA 23261–5074 CD-ROM. You can order IRS Publication 1796, Federal Tax Products on CD-ROM, and obtain: • Current tax forms, instructions, and publications. Page 19 Index A Adoption . . . . . . . . . . . . . . . . . . . . . 4 Aliens . . . . . . . . . . . . . . . . . . . . . . . 4 Alternative minimum tax . . . . . . . . 13 Amount of credit . . . . . . . . . . . . . . 12 Assistance (See Tax help) ATIN . . . . . . . . . . . . . . . . . . . . . . . 4 F Forfeitures . . . . . . . . . . . . . . . . . . 10 Forms: 2441 . . . . . . . . . . . . . . . . . . . . . 13 8332 . . . . . . . . . . . . . . . . . . . . . . 4 W–10 . . . . . . . . . . . . . . . . . . . . . 9 W–2 . . . . . . . . . . . . . . . . . . . . . 10 Free tax services . . . . . . . . . . . . . 18 Public assistance benefits . . . . . . . . 5 Publications (See Tax help) Q Qualifying person . . . . . . . . . . . . . . 2 R Recordkeeping . . . . . . . . . . . . . 9, 13 Reduced dollar limit . . . . . . . . . . . 12 Reimbursed expenses . . . . . . . . . 10 Relatives, payments to . . . . . . . . . . 8 C Camp, overnight . . . . . . . . . . . . . . . 8 Care: For qualifying person . . . . . . . . . . 8 Outside home . . . . . . . . . . . . . . . 8 Provider . . . . . . . . . . . . . . . . . . . 9 Child of divorced or separated parents . . . . . . . . . . . . . . . . . . . . 4 Comments . . . . . . . . . . . . . . . . . . . 2 Community property laws . . . . . . . 11 Cook . . . . . . . . . . . . . . . . . . . . . . . 8 Costs of keeping up home . . . . . . . 5 Custodial parent . . . . . . . . . . . . . . . 4 H Help (See Tax help) Household employer . . . . . . . . . 8, 13 Household services . . . . . . . . . . . . 8 Housekeeper . . . . . . . . . . . . . . . . . 8 How to claim . . . . . . . . . . . . . . . . . 13 S Schedule 2 (Form 1040A) . . . . . . . 13 Self-employment earnings . . . . . . 11 Separated parents . . . . . . . . 4, 9, 11 Social security number . . . . . . . . . . 4 Spouse: Divorced . . . . . . . . . . . . . . . . . . . 4 Not able to care for self . . . . . 7, 11 Separated . . . . . . . . . . . . . 4, 9, 11 Student . . . . . . . . . . . . . . . . . 7, 11 Surviving . . . . . . . . . . . . . . . . 9, 11 Student-spouse . . . . . . . . . . . . 7, 11 Suggestions . . . . . . . . . . . . . . . . . . 2 I Identification number, qualifying person . . . . . . . . . . . . . . . . . . . . 4 Identification of care provider . . . . . 9 ITIN . . . . . . . . . . . . . . . . . . . . . . . . 4 D Death of spouse . . . . . . . . . . . . 9, 11 Dependent care benefits . . 2, 10, 12, 14 Dependent care center . . . . . . . . . . 8 Divorced parents . . . . . . . . . . . . . . 4 Dollar limit . . . . . . . . . . . . . . . . . . 11 Due diligence . . . . . . . . . . . . . . . . . 9 J Joint return test . . . . . . . . . . . . . . . 9 K Keeping up a home test . . . . . . . . . 5 T Tax help . . . . . . . . . . . . . . . . . . . . 18 Taxes on wages . . . . . . . . . . . . 8, 13 Taxpayer Advocate . . . . . . . . . . . . 18 Taxpayer identification number . . . . 4 Transportation . . . . . . . . . . . . . . . . 8 TTY/TDD information . . . . . . . . . . 18 L Limits: Dollar . . . . . . . . . . . . . . . . . . . . 11 Earned income . . . . . . . . . . . . . 10 Looking for work . . . . . . . . . . . . . . . 7 E Earned income limit . . . . . . . . . . . 10 Earned income test . . . . . . . . . . . . . 5 Earned income: Inclusions . . . . . . . . . . . . . . . . . . 5 Nontaxable . . . . . . . . . . . . . . . . . 5 What is not . . . . . . . . . . . . . . . . . 7 Employer-provided dependent care benefits . . . 10, 12 Employment taxes . . . . . . . . . . . . 13 Expenses: Medical . . . . . . . . . . . . . . . . . . . 10 Paid in following year . . . . . 10, 12 Prepaid . . . . . . . . . . . . . . . . . . . 10 Reimbursed . . . . . . . . . . . . . . . 10 Work-related . . . . . . . . . . . . . 7, 10 M Maid . . . . . . . . . . . . . . . . . . . . . . . . 8 Meals and lodging for housekeeper . . . . . . . . . . . . . . . . 8 Medical expenses . . . . . . . . . . . . . 10 More information (See Tax help) U Upkeep of home, costs . . . . . . . . . . 5 V Volunteer work . . . . . . . . . . . . . . . . 7 N Nontaxable earned income . . . . . . . 5 Not able to care for oneself . . 4, 7, 11 W Wages, taxes on . . . . . . . . . . . . 8, 13 Work-related expense test . . . . . . . 7 I P Provider identification test . . . . . . . . 9 Page 20