DEPENDENT CARE, CTC, ETC
§ Non-refundable credits reduce the amount of tax
§ If no tax is owed, or if the credit is greater than the
tax owed, the excess credit is not refunded to the
§ Non-refundable credits appear on lines 47 through
53 of Form 1040.
Refundable credits also reduce the amount of tax
But if the credits are greater than the tax, the
excess is refunded to the taxpayer.
Refundable credits appear in the payment section
of the 1040 along with tax withheld (lines 63-71).
FOREIGN TAX CREDIT
A taxpayer can often take a nonrefundable credit on
US taxes for taxes paid to a foreign country on
income from that country.
This credit is usually out of scope for us, except for
preparers with international certification.
However, if foreign taxes appear on a 1099-INT or
1099-DIV, we can take care of them. Enter the
amount on line 46 of the 1040.
CREDIT FOR CHILD AND
DEPENDENT CARE EXPENSES
This is a nonrefundable credit that allows taxpayers
to reduce their taxes by a percentage of their
expenses for child and dependent care.
It may be claimed by taxpayers who, in order to
work, look for work, or attend school full-time, pay
someone to care for their qualifying:
Dependent child under the age of 13;
Spouse or dependent who is unable to care for
DEPENDENT CARE EXPENSES cont’d.
The taxpayer (both, if filing jointly) must have earned
income or be full-time student(s).
q The credit is a max. 35% of up to $3,000 of a taxpayer's
work-related expenses for one child ($6,000 for two or
Any dependent-care benefits received from an employer
(see W-2, box 10) must be subtracted from the $3,000.
Only the custodial parent may claim this credit .
DEPENDENT CARE EXPENSES cont’d.
A married person filing separately may not take this
q Credit cannot be taken for amounts paid to a
dependent, the other parent of the child, or a child of
the taxpayer who is under 19.
q The taxpayer must provide the name, address and SSN
or EIN of the care provider.
q Information for this credit is entered on form 2441.
A taxpayer who received dependent care benefits from
an employer must complete Form 2441even if no
payments were made for such care.
q A nonrefundable credit for contributions to a
q For an employer-sponsored plan, the information
appears on the W-2.
q For an IRA noted on the intake form, enter the
taxpayer’s information on the IRA worksheet.
q Either form will prompt you to complete Form 8880.
The calculations are done by TaxWise.
CHILD TAX CREDIT
The child tax credit is a nonrefundable credit of up
to $1,000 per qualifying child.
Those whose tax liability is small (or zero) will not
receive all (or any) of the child tax credit because
there is little (or no) tax to reduce.
However, such taxpayers may be able to take the
additional child tax credit (which is refundable).
To claim the child tax credit, the taxpayer must have at
least one qualifying child, who:
Can be claimed as a dependent;
Is under 17 at the end of the tax year;
Did not provide over half of his/her own support;
Lived with the taxpayer for more than 6 months of the tax
Is a US citizen, US national, or US resident.
(Note: for divorced, etc. parents, the CTC can be claimed
by the non-custodial parent if the custodial parent has
released the dependency exemption to the other parent.)
FIGURING CHILD TAX CREDIT
It is based on the taxpayer’s tax liability, modified
adjusted gross income (MAGI), and filing status.
The amount of the credit may be reduced if the
Tax liability minus the other nonrefundable credits is
less than the maximum child tax credit, or
MAGI is above the limits for the taxpayer’s filing
ADDITIONAL CHILD TAX CREDIT
Some taxpayers who do not get the full $1,000 of
the child tax credit may qualify for the additional
child tax credit, which is refundable.
The credit is generally based on the lesser of:
15% of the taxpayer's taxable earned income that is
more than $3,000, or
The amount of unused child tax credit (caused when tax
liability is less than allowed credit)
Entering the information
TaxWise will generate the necessary forms when
data about dependent children shows they qualify.
If more information is needed to complete the
forms, the system will prompt the preparer to do
TaxWise calculates both credits.