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Irs1040

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Irs1040

Irs1040 32. Irs1040   Child and Dependent Care Credit Table of Contents Reminders Introduction Useful Items - You may want to see: Tests To Claim the CreditQualifying Person Test Earned Income Test Work-Related Expense Test Joint Return Test Provider Identification Test How To Figure the CreditFiguring Total Work-Related Expenses Earned Income Limit Dollar Limit Amount of Credit How To Claim the CreditTax credit not refundable. Irs1040 Employment Taxes for Household Employers Reminders Taxpayer identification number needed for each qualifying person. Irs1040  You must include on line 2 of Form 2441 the name and taxpayer identification number (generally the social security number) of each qualifying person. Irs1040 See Taxpayer identification number under Qualifying Person Test, later. Irs1040 You may have to pay employment taxes. Irs1040  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. Irs1040 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. Irs1040 See Employment Taxes for Household Employers , later. Irs1040 Introduction This chapter discusses the credit for child and dependent care expenses and covers the following topics. Irs1040 Tests you must meet to claim the credit. Irs1040 How to figure the credit. Irs1040 How to claim the credit. Irs1040 Employment taxes you may have to pay as a household employer. Irs1040 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. Irs1040 The credit can be up to 35% of your expenses. Irs1040 To qualify, you must pay these expenses so you can work or look for work. Irs1040 This credit should not be confused with the child tax credit discussed in chapter 34. Irs1040 Dependent care benefits. Irs1040   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. Irs1040 You must complete Form 2441, Part III, before you can figure the amount of your credit. Irs1040 See Dependent Care Benefits under How To Figure the Credit, later. Irs1040 Useful Items - You may want to see: Publication 501 Exemptions, Standard Deduction, and Filing Information 503 Child and Dependent Care Expenses 926 Household Employer's Tax Guide Form (and Instructions) 2441 Child and Dependent Care Expenses Schedule H (Form 1040) Household Employment Taxes W-7 Application for IRS Individual Taxpayer Identification Number W-10 Dependent Care Provider's Identification and Certification 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. Irs1040 The care must be for one or more qualifying persons who are identified on Form 2441. Irs1040 (See Qualifying Person Test . Irs1040 ) You (and your spouse if filing jointly) must have earned income during the year. Irs1040 (However, see Rule for student-spouse or spouse not able to care for self under Earned Income Test, later. Irs1040 ) You must pay child and dependent care expenses so you (and your spouse if filing jointly) can work or look for work. Irs1040 (See Work-Related Expense Test , later. Irs1040 ) You must make payments for child and dependent care to someone you (and your spouse) cannot claim as a dependent. Irs1040 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. Irs1040 You cannot make payments to: Your spouse, or The parent of your qualifying person if your qualifying person is your child and under age 13. Irs1040 (See Payments to Relatives or Dependents under Work-Related Expense Test, later. Irs1040 ) Your filing status may be single, head of household, or qualifying widow(er) with dependent child. Irs1040 If you are married, you must file a joint return, unless an exception applies to you. Irs1040 (See Joint Return Test , later. Irs1040 ) You must identify the care provider on your tax return. Irs1040 (See Provider Identification Test , later. Irs1040 ) If you exclude or deduct dependent care benefits provided by a dependent care benefits plan, the total amount you exclude or deduct must be less than the dollar limit for qualifying expenses (generally, $3,000 if one qualifying person was cared for or $6,000 if two or more qualifying persons were cared for). Irs1040 (If two or more qualifying persons were cared for, the amount you exclude or deduct will always be less than the dollar limit, since the total amount you can exclude or deduct is limited to $5,000. Irs1040 See Reduced Dollar Limit under How To Figure the Credit, later. Irs1040 ) These tests are presented in Figure 32-A and are also explained in detail in this chapter. Irs1040 Figure 32-A. Irs1040 Can You Claim the Credit? Please click here for the text description of the image. Irs1040 Figure 32-A Can You Claim the Credit? Qualifying Person Test Your child and dependent care expenses must be for the care of one or more qualifying persons. Irs1040 A qualifying person is: Your qualifying child who is your dependent and who was under age 13 when the care was provided (but see Child of divorced or separated parents or parents living apart, later), Your spouse who was not physically or mentally able to care for himself or herself and lived with you for more than half the year, or A person who was not physically or mentally able to care for himself or herself, lived with you for more than half the year, and either: Was your dependent, or Would have been your dependent except that: He or she received gross income of $3,900 or more, He or she filed a joint return, or You, or your spouse if filing jointly, could be claimed as a dependent on someone else's 2013 return. Irs1040 Dependent defined. Irs1040   A dependent is a person, other than you or your spouse, for whom you can claim an exemption. Irs1040 To be your dependent, a person must be your qualifying child (or your qualifying relative). Irs1040 Qualifying child. Irs1040   To be your qualifying child, a child must live with you for more than half the year and meet other requirements. Irs1040 More information. Irs1040   For more information about who is a dependent or a qualifying child, see chapter 3. Irs1040 Physically or mentally not able to care for oneself. Irs1040   Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Irs1040 Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves. Irs1040 Person qualifying for part of year. Irs1040   You determine a person's qualifying status each day. Irs1040 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. Irs1040 Also see Yearly limit under Dollar Limit, later. Irs1040 Birth or death of otherwise qualifying person. Irs1040   In determining whether a person is a qualifying person, a person who was born or died in 2013 is treated as having lived with you for more than half of 2013 if your home was the person's home for more than half the time he or she was alive in 2013. Irs1040 Taxpayer identification number. Irs1040   You must include on your return the name and taxpayer identification number (generally the social security number) of the qualifying person(s). Irs1040 If the correct information is not shown, the credit may be reduced or disallowed. Irs1040 Individual taxpayer identification number (ITIN) for aliens. Irs1040   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. Irs1040 The ITIN is entered wherever an SSN is requested on a tax return. Irs1040 To apply for an ITIN, see Form W-7. Irs1040   An ITIN is for tax use only. Irs1040 It does not entitle the holder to social security benefits or change the holder's employment or immigration status under U. Irs1040 S. Irs1040 law. Irs1040 Adoption taxpayer identification number (ATIN). Irs1040   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. Irs1040 File Form W-7A, Application for Taxpayer Identification Number for Pending U. Irs1040 S. Irs1040 Adoptions. Irs1040 Child of divorced or separated parents or parents living apart. Irs1040   Even if you cannot claim your child as a dependent, he or she is treated as your qualifying person if: The child was under age 13 or was not physically or mentally able to care for himself or herself, The child received over half of his or her support during the calendar year from one or both parents who are divorced or legally separated under a decree of divorce or separate maintenance, are separated under a written separation agreement, or lived apart at all times during the last 6 months of the calendar year, The child was in the custody of one or both parents for more than half the year, and You were the child's custodial parent. Irs1040   The custodial parent is the parent with whom the child lived for the greater number of nights in 2013. Irs1040 If the child was with each parent for an equal number of nights, the custodial parent is the parent with the higher adjusted gross income. Irs1040 For details and an exception for a parent who works at night, see Pub. Irs1040 501. Irs1040   The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents. Irs1040 Earned Income Test To claim the credit, you (and your spouse if filing jointly) must have earned income during the year. Irs1040 Earned income. Irs1040   Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. Irs1040 A net loss from self-employment reduces earned income. Irs1040 Earned income also includes strike benefits and any disability pay you report as wages. Irs1040   Generally, only taxable compensation is included. Irs1040 However, you can elect to include nontaxable combat pay in earned income. Irs1040 If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. Irs1040 (In other words, if one of you makes the election, the other one can also make it but does not have to. Irs1040 ) You should figure your credit both ways and make the election if it gives you a greater tax benefit. Irs1040 Members of certain religious faiths opposed to social security. Irs1040   Certain income earned by 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 may not be considered earned income for this purpose. Irs1040 See Earned Income Test in Publication 503. Irs1040 Not earned income. Irs1040   Earned income does not include: Pensions and annuities, Social security and railroad retirement benefits, Workers' compensation, Interest and dividends, Unemployment compensation, Scholarship or fellowship grants, except for those reported on a Form W-2 and paid to you for teaching or other services, Nontaxable workfare payments, Child support payments received by you, Income of nonresident aliens that is not effectively connected with a U. Irs1040 S. Irs1040 trade or business, or Any amount received for work while an inmate in a penal institution. Irs1040 Rule for student-spouse or spouse not able to care for self. Irs1040   Your spouse is treated as having earned income for any month that he or she is: A full-time student, or Physically or mentally not able to care for himself or herself. Irs1040 (Your spouse also must live with you for more than half the year. Irs1040 )   If you are filing a joint return, this rule also applies to you. Irs1040 You can be treated as having earned income for any month you are a full-time student or not able to care for yourself. Irs1040   Figure the earned income of the nonworking spouse described under (1) or (2) above as explained under Earned Income Limit , later. Irs1040   This rule applies to only one spouse for any one month. Irs1040 If, in the same month, both you and your spouse do not work and are either full-time students or not physically or mentally able to care for yourselves, only one of you can be treated as having earned income in that month. Irs1040 Full-time student. Irs1040   You are a full-time student if you are enrolled at a school for the number of hours or classes that the school considers full time. Irs1040 You must have been a full-time student for some part of each of 5 calendar months during the year. Irs1040 (The months need not be consecutive. Irs1040 ) School. Irs1040   The term “school” includes high schools, colleges, universities, and technical, trade, and mechanical schools. Irs1040 A school does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Irs1040 Work-Related Expense Test Child and dependent care expenses must be work-related to qualify for the credit. Irs1040 Expenses are considered work-related only if both of the following are true. Irs1040 They allow you (and your spouse if filing jointly) to work or look for work. Irs1040 They are for a qualifying person's care. Irs1040 Working or Looking for Work To be work-related, your expenses must allow you to work or look for work. Irs1040 If you are married, generally both you and your spouse must work or look for work. Irs1040 One spouse is treated as working during any month he or she is a full-time student or is not physically or mentally able to care for himself or herself. Irs1040 Your work can be for others or in your own business or partnership. Irs1040 It can be either full time or part time. Irs1040 Work also includes actively looking for work. Irs1040 However, if you do not find a job and have no earned income for the year, you cannot take this credit. Irs1040 See Earned Income Test , earlier. Irs1040 An expense is not considered work-related merely because you had it while you were working. Irs1040 The purpose of the expense must be to allow you to work. Irs1040 Whether your expenses allow you to work or look for work depends on the facts. Irs1040 Example 1. Irs1040 The cost of a babysitter while you and your spouse go out to eat is not normally a work-related expense. Irs1040 Example 2. Irs1040 You work during the day. Irs1040 Your spouse works at night and sleeps during the day. Irs1040 You pay for care of your 5-year-old child during the hours when you are working and your spouse is sleeping. Irs1040 Your expenses are considered work-related. Irs1040 Volunteer work. Irs1040    For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary. Irs1040 Work for part of year. Irs1040   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. Irs1040 For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work-related. Irs1040 However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (2½ months × $250). Irs1040 Temporary absence from work. Irs1040   You do not have to figure your expenses for each day during a short, temporary absence from work, such as for vacation or a minor illness, if you have to pay for care anyway. Irs1040 Instead, you can figure your credit including the expenses you paid for the period of absence. Irs1040   An absence of 2 weeks or less is a short, temporary absence. Irs1040 An absence of more than 2 weeks may be considered a short, temporary absence, depending on the circumstances. Irs1040 Example. Irs1040 You pay a nanny to care for your 2-year-old son and 4-year-old daughter so you can work. Irs1040 You become ill and miss 4 months of work but receive sick pay. Irs1040 You continue to pay the nanny to care for the children while you are ill. Irs1040 Your absence is not a short, temporary absence, and your expenses are not considered work-related. Irs1040 Part-time work. Irs1040   If you work part-time, you generally must figure your expenses for each day. Irs1040 However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Irs1040 Any day when you work at least 1 hour is a day of work. Irs1040 Example 1. Irs1040 You work 3 days a week. Irs1040 While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. Irs1040 You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Irs1040 Your child attends the center 5 days a week. Irs1040 Your work-related expenses are limited to $150 a week. Irs1040 Example 2. Irs1040 The facts are the same as in Example 1 except the center does not offer a 3-day option. Irs1040 The entire $250 weekly fee may be a work-related expense. Irs1040 Care of a Qualifying Person To be work-related, your expenses must be to provide care for a qualifying person. Irs1040 You do not have to choose the least expensive way of providing care. Irs1040 The cost of a paid care provider may be an expense for the care of a qualifying person even if another care provider is available at no cost. Irs1040 Expenses are for the care of a qualifying person only if their main purpose is the person's well-being and protection. Irs1040 Expenses for household services qualify if part of the services is for the care of qualifying persons. Irs1040 See Household services , later. Irs1040 Expenses not for care. Irs1040   Expenses for care do not include amounts you pay for food, lodging, clothing, education, and entertainment. Irs1040 However, you can include small amounts paid for these items if they are incidental to and cannot be separated from the cost of caring for the qualifying person. Irs1040   Child support payments are not for care and do not qualify for the credit. Irs1040 Education. Irs1040   Expenses for a child in nursery school, preschool, or similar programs for children below the level of kindergarten are expenses for care. Irs1040 Expenses to attend kindergarten or a higher grade are not expenses for care. Irs1040 Do not use these expenses to figure your credit. Irs1040   However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care. Irs1040   Summer school and tutoring programs are not for care. Irs1040 Example 1. Irs1040 You take your 3-year-old child to a nursery school that provides lunch and educational activities as a part of its preschool childcare service. Irs1040 The lunch and educational activities are incidental to the childcare, and their cost cannot be separated from the cost of care. Irs1040 You can count the total cost when you figure the credit. Irs1040 Example 2. Irs1040 You place your 10-year-old child in a boarding school so you can work full time. Irs1040 Only the part of the boarding school expense that is for the care of your child is a work-related expense. Irs1040 You can count that part of the expense in figuring your credit if it can be separated from the cost of education. Irs1040 You cannot count any part of the amount you pay the school for your child's education. Irs1040 Care outside your home. Irs1040   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. Irs1040 Dependent care center. Irs1040   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. Irs1040   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. Irs1040 Camp. Irs1040   The cost of sending your child to an overnight camp is not considered a work-related expense. Irs1040 The cost of sending your child to a day camp may be a work-related expense, even if the camp specializes in a particular activity, such as computers or soccer. Irs1040 Transportation. Irs1040   If a care provider takes a qualifying person to or from a place where care is provided, that transportation is for the care of the qualifying person. Irs1040 This includes transportation by bus, subway, taxi, or private car. Irs1040 However, transportation not provided by a care provider is not for the care of a qualifying person. Irs1040 Also, if you pay the transportation cost for the care provider to come to your home, that expense is not for care of a qualifying person. Irs1040 Fees and deposits. Irs1040   Fees you paid to an agency to get the services of a care provider, deposits you paid to an agency or preschool, application fees, and other indirect expenses are work-related expenses if you have to pay them to get care, even though they are not directly for care. Irs1040 However, a forfeited deposit is not for the care of a qualifying person if care is not provided. Irs1040 Example 1. Irs1040 You paid a fee to an agency to get the services of the nanny who cares for your 2-year-old daughter while you work. Irs1040 The fee you paid is a work-related expense. Irs1040 Example 2. Irs1040 You placed a deposit with a preschool to reserve a place for your 3-year-old child. Irs1040 You later sent your child to a different preschool and forfeited the deposit. Irs1040 The forfeited deposit is not for care and so is not a work-related expense. Irs1040 Household services. Irs1040   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. Irs1040   Household services are ordinary and usual services done in and around your home that are necessary to run your home. Irs1040 They include the services of a housekeeper, maid, or cook. Irs1040 However, they do not include the services of a chauffeur, bartender, or gardener. Irs1040 See Household Services in Publication 503 for more information. Irs1040   In this chapter, the term housekeeper refers to any household employee whose services include the care of a qualifying person. Irs1040 Taxes paid on wages. Irs1040   The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. Irs1040 See Employment Taxes for Household Employers , later. Irs1040 Payments to Relatives or Dependents You can count work-related payments you make to relatives who are not your dependents, even if they live in your home. Irs1040 However, do not count any amounts you pay to: A dependent for whom you (or your spouse if filing jointly) can claim an exemption, Your child who was under age 19 at the end of the year, even if he or she is not your dependent, A person who was your spouse any time during the year, or The parent of your qualifying person if your qualifying person is your child and under age 13. Irs1040 Joint Return Test Generally, married couples must file a joint return to take the credit. Irs1040 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. Irs1040 Legally separated. Irs1040   You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. Irs1040 You may be eligible to take the credit on your return using head of household filing status. Irs1040 Married and living apart. Irs1040   You are not considered married and are eligible to take the credit if all the following apply. Irs1040 You file a return apart from your spouse. Irs1040 Your home is the home of a qualifying person for more than half the year. Irs1040 You pay more than half the cost of keeping up your home for the year. Irs1040 Your spouse does not live in your home for the last 6 months of the year. Irs1040 Costs of keeping up a home. Irs1040   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. Irs1040   The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal. Irs1040   They also do not include the purchase, permanent improvement, or replacement of property. Irs1040 For example, you cannot include the cost of replacing a water heater. Irs1040 However, you can include the cost of repairing a water heater. Irs1040 Death of spouse. Irs1040   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. Irs1040 If you do remarry before the end of the year, the credit can be claimed on your deceased spouse's return. Irs1040 Provider Identification Test You must identify all persons or organizations that provide care for your child or dependent. Irs1040 Use Form 2441, Part I, to show the information. Irs1040 If you do not have any care providers and you are filing Form 2441 only to report taxable income in Part III, enter “none” in line 1, column (a). Irs1040 Information needed. Irs1040   To identify the care provider, you must give the provider's: Name, Address, and Taxpayer identification number. Irs1040   If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. Irs1040 If the care provider is an organization, then it is the employer identification number (EIN). Irs1040   You do not have to show the taxpayer identification number if the care provider is a tax-exempt organization (such as a church or school). Irs1040 In this case, enter “Tax-Exempt” in the space where Form 2441 asks for the number. Irs1040   If you cannot provide all of the information or if the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information. Irs1040 Getting the information. Irs1040   You can use Form W-10 to request the required information from the care provider. Irs1040 If you do not use Form W-10, you can get the information from one of the other sources listed in the instructions for Form W-10 including: A copy of the provider's social security card, A copy of the provider's completed Form W-4 if he or she is your household employee, A copy of the statement furnished by your employer if the provider is your employer's dependent care plan, or A letter or invoice from the provider if it shows the information. Irs1040    You should keep this information with your tax records. Irs1040 Do not send Form W-10 (or other document containing this information) to the Internal Revenue Service. Irs1040 Due diligence. Irs1040   If the care provider information you give is incorrect or incomplete, your credit may not be allowed. Irs1040 However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit. Irs1040   You can show due diligence by getting and keeping the provider's completed Form W-10 or one of the other sources of information just listed. Irs1040 Care providers can be penalized if they do not provide this information to you or if they provide incorrect information. Irs1040 Provider refusal. Irs1040   If the provider refuses to give you their identifying information, you should report on Form 2441 whatever information you have (such as the name and address). Irs1040 Enter “See Attached Statement” in the columns calling for the information you do not have. Irs1040 Then attach a statement explaining that you requested the information from the care provider, but the provider did not give you the information. Irs1040 Be sure to write your name and social security number on this statement. Irs1040 The statement will show that you used due diligence in trying to furnish the necessary information. Irs1040 U. Irs1040 S. Irs1040 citizens and resident aliens living abroad. Irs1040   If you are living abroad, your care provider may not have, and may not be required to get, a U. Irs1040 S. Irs1040 taxpayer identification number (for example, an SSN or EIN). Irs1040 If so, enter “LAFCP” (Living Abroad Foreign Care Provider) in the space for the care provider's taxpayer identification number. Irs1040 How To Figure the Credit Your credit is a percentage of your work-related expenses. Irs1040 Your expenses are subject to the earned income limit and the dollar limit. Irs1040 The percentage is based on your adjusted gross income. Irs1040 Figuring Total Work-Related Expenses To figure the credit for 2013 work-related expenses, count only those you paid by December 31, 2013. Irs1040 Expenses prepaid in an earlier year. Irs1040   If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Irs1040 Claim the expenses for the later year as if they were actually paid in that later year. Irs1040 Expenses not paid until the following year. Irs1040   Do not count 2012 expenses that you paid in 2013 as work-related expenses for 2013. Irs1040 You may be able to claim an additional credit for them on your 2013 return, but you must figure it separately. Irs1040 See Payments for prior year's expenses under Amount of Credit in Publication 503. Irs1040    If you had expenses in 2013 that you did not pay until 2014, you cannot count them when figuring your 2013 credit. Irs1040 You may be able to claim a credit for them on your 2014 return. Irs1040 Expenses reimbursed. Irs1040   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. Irs1040 Example. Irs1040 You paid work-related expenses of $3,000. Irs1040 You are reimbursed $2,000 by a state social services agency. Irs1040 You can use only $1,000 to figure your credit. Irs1040 Medical expenses. Irs1040   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. Irs1040 You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction. Irs1040   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. Irs1040 However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit. Irs1040    Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction. Irs1040 Dependent Care Benefits If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. Irs1040 See Reduced Dollar Limit , later. Irs1040 But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care benefits. Irs1040 Dependent care benefits. Irs1040   Dependent care benefits include: Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work, The fair market value of care in a daycare facility provided or sponsored by your employer, and Pre-tax contributions you made under a dependent care flexible spending arrangement. Irs1040 Your salary may have been reduced to pay for these benefits. Irs1040 If you received benefits as an employee, they should be shown in box 10 of your Form W-2. Irs1040 See Statement for employee , later. Irs1040 Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Irs1040 Enter the amount of these benefits on Form 2441, Part III, line 12. Irs1040 Exclusion or deduction. Irs1040   If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Irs1040 Your employer can tell you whether your benefit plan qualifies. Irs1040 To claim the exclusion, you must complete Part III of Form 2441. Irs1040 You cannot use Form 1040EZ. Irs1040   If you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee. Irs1040 Therefore, you would not get an exclusion from wages. Irs1040 Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. Irs1040 To claim the deduction, you must use Form 2441. Irs1040   The amount you can exclude or deduct is limited to the smallest of: The total amount of dependent care benefits you received during the year, The total amount of qualified expenses you incurred during the year, Your earned income, Your spouse's earned income, or $5,000 ($2,500 if married filing separately). Irs1040 The definition of earned income for the exclusion or deduction is the same as the definition used when figuring the credit except that earned income for the exclusion or deduction does not include any dependent care benefits you receive. Irs1040 See Earned Income Limit, later. Irs1040    You can choose to include your nontaxable combat pay in earned income when figuring your exclusion or deduction, even if you choose not to include it in earned income for the earned income credit or the credit for child and dependent care expenses. Irs1040 Statement for employee. Irs1040   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. Irs1040 Your employer will also include any dependent care benefits over $5,000 in your wages shown on your Form W-2 in box 1. Irs1040 Effect of exclusion on credit. Irs1040   If you exclude dependent care benefits from your income, the amount of the excluded benefits: Is not included in your work-related expenses, and Reduces the dollar limit, discussed later. Irs1040 Earned Income Limit The amount of work-related expenses you use to figure your credit cannot be more than: Your earned income for the year if you are single at the end of the year, or The smaller of your or your spouse's earned income for the year if you are married at the end of the year. Irs1040 Earned income is defined under Earned Income Test , earlier. Irs1040 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. Irs1040 Separated spouse. Irs1040   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. Irs1040 Use only your income in figuring the earned income limit. Irs1040 Surviving spouse. Irs1040   If your spouse died during the year and you file a joint return as a surviving spouse, you may, but are not required to, take into account the earned income of your spouse who died during the year. Irs1040 Community property laws. Irs1040   You should disregard community property laws when you figure earned income for this credit. Irs1040 You or your spouse is a student or not able to care for self. Irs1040   Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. Irs1040 His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more. Irs1040 Spouse works. Irs1040   If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month. Irs1040 Spouse qualifies for part of month. Irs1040    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 $250 (or $500) still applies for that month. Irs1040 You are a student or not able to care for self. Irs1040   These rules also apply if you are a student or not able to care for yourself and you are filing a joint return. Irs1040 For each month or part of a month you are a student or not able to care for yourself, your earned income is considered to be at least $250 (or $500). Irs1040 If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month. Irs1040 Both spouses qualify. Irs1040   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 $250 (or $500) for that month. Irs1040 Dollar Limit There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. Irs1040 This limit is $3,000 for one qualifying person, or $6,000 for two or more qualifying persons. Irs1040 If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. Irs1040 This $6,000 limit does not need to be divided equally among them. Irs1040 For example, if your work-related expenses for the care of one qualifying person are $3,200 and your work-related expenses for another qualifying person are $2,800, you can use the total, $6,000, when figuring the credit. Irs1040 Yearly limit. Irs1040   The dollar limit is a yearly limit. Irs1040 The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Irs1040 Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Irs1040 Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year. Irs1040 Reduced Dollar Limit If you received dependent care benefits that you exclude or deduct from your income, you must subtract that amount from the dollar limit that applies to you. Irs1040 Your reduced dollar limit is figured on Form 2441, Part III. Irs1040 See Dependent Care Benefits , earlier, for information on excluding or deducting these benefits. Irs1040 Example 1. Irs1040 George is a widower with one child and earns $24,000 a year. Irs1040 He pays work-related expenses of $2,900 for the care of his 4-year-old child and qualifies to claim the credit for child and dependent care expenses. Irs1040 His employer pays an additional $1,000 under a dependent care benefit plan. Irs1040 This $1,000 is excluded from George's income. Irs1040 Although the dollar limit for his work-related expenses is $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900 work-related expenses he paid. Irs1040 This is because his dollar limit is reduced as shown next. Irs1040   George's Reduced Dollar Limit 1) Maximum allowable expenses for one qualifying person $3,000 2) Minus: Dependent care benefits George excludes from income −1,000 3) Reduced dollar limit on expenses George can use for the credit $2,000 Example 2. Irs1040 Randall is married and both he and his wife are employed. Irs1040 Each has earned income in excess of $6,000. Irs1040 They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Irs1040 Randall's work-related expenses are $6,000 for the year. Irs1040 Randall's employer has a dependent care assistance program as part of its cafeteria plan, which allows employees to make pre-tax contributions to a dependent care flexible spending arrangement. Irs1040 Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program. Irs1040 Although the dollar limit for his work- related expenses is $6,000 (two or more qualifying persons), Randall figures his credit on only $1,000 of the $6,000 work-related expense paid. Irs1040 This is because his dollar limit is reduced as shown next. Irs1040   Randall's Reduced Dollar Limit 1) Maximum allowable expenses for two qualifying persons $6,000 2) Minus: Dependent care benefits Randall selects from employer's cafeteria plan and excludes from income −5,000 3) Reduced dollar limit on expenses Randall can use for the credit $1,000 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. Irs1040 This percentage depends on your adjusted gross income shown on Form 1040, line 38, or Form 1040A, line 22. Irs1040 The following table shows the percentage to use based on adjusted gross income. Irs1040   IF your adjusted gross income is: THEN the percentage is:       Over   But not over         $0   $15,000   35%       15,000   17,000   34%       17,000   19,000   33%       19,000   21,000   32%       21,000   23,000   31%       23,000   25,000   30%       25,000   27,000   29%       27,000   29,000   28%       29,000   31,000   27%       31,000   33,000   26%       33,000   35,000   25%       35,000   37,000   24%       37,000   39,000   23%       39,000   41,000   22%       41,000   43,000   21%       43,000   No limit   20%   How To Claim the Credit To claim the credit, you can file Form 1040 or Form 1040A. Irs1040 You cannot claim the credit on Form 1040EZ. Irs1040 Form 1040 or 1040A. Irs1040   You must complete Form 2441 and attach it to your Form 1040 or 1040A. Irs1040 Enter the credit on Form 1040, line 48, or Form 1040A, line 29. Irs1040 Limit on credit. Irs1040   The amount of credit you can claim is generally limited to the amount of your tax. Irs1040 For more information, see the Instructions for Form 2441. Irs1040 Tax credit not refundable. Irs1040   You cannot get a refund for any part of the credit that is more than this limit. Irs1040 Recordkeeping. Irs1040 You should keep records of your work-related expenses. Irs1040 Also, if your dependent or spouse is not able to care for himself or herself, your records should show both the nature and the length of the disability. Irs1040 Other records you should keep to support your claim for the credit are described earlier under Provider Identification Test . Irs1040 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. Irs1040 If you are a household employer, you will need an employer identification number (EIN) and you may have to pay employment taxes. Irs1040 If the individuals who work in your home are self-employed, you are not liable for any of the taxes discussed in this section. Irs1040 Self-employed persons who are in business for themselves are not household employees. Irs1040 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. Irs1040 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, the worker is not your employee. Irs1040 This control could include providing rules of conduct and appearance and requiring regular reports. Irs1040 In this case, you do not have to pay employment taxes. Irs1040 But, if an agency merely gives you a list of sitters and you hire one from that list, and pay the sitter directly, the sitter may be your employee. Irs1040 If you have a household employee, you may be subject to: Social security and Medicare taxes, Federal unemployment tax, and Federal income tax withholding. Irs1040 Social security and Medicare taxes are generally withheld from the employee's pay and matched by the employer. Irs1040 Federal unemployment (FUTA) tax is paid by the employer only and provides for payments of unemployment compensation to workers who have lost their jobs. Irs1040 Federal income tax is withheld from the employee's total pay if the employee asks you to do so and you agree. Irs1040 For more information on a household employer's tax responsibilities, see Publication 926 and Schedule H (Form 1040) and its instructions. Irs1040 State employment tax. Irs1040   You may also have to pay state unemployment tax. Irs1040 Contact your state unemployment tax office for information. Irs1040 You should also find out whether you need to pay or collect other state employment taxes or carry workers' compensation insurance. Irs1040 For a list of state unemployment tax agencies, visit the U. Irs1040 S. Irs1040 Department of Labor's website. Irs1040 A link to that website is in Publication 926, or you can find it with an online search. Irs1040 Prev  Up  Next   Home   More Online Publications
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