50315004MChild and
Dependent
Care ExpensesWhat's New1 Reminders1Introduction2Tests To Claim the Credit2Qualifying Person Test3Earned Income Test3Work-Related Expense Test5Joint Return Test7Provider Identification Test7How To Figure the Credit8Figuring Total Work-Related Expenses8Earned Income Limit9Dollar Limit10Amount of Credit10How To Claim the Credit11Employment Taxes for Household Employers11Examples14How To Get Tax Help18Index20What's NewKeeping up home test eliminated.
Generally, you no longer need to pay over half the cost of keeping up a home for a qualifying person. However, the qualifying person must live with
you for more than half of 2005. See Qualifying Person Test for more information.
Qualifying person.
To be your qualifying person, a child generally must be your qualifying child. See Qualifying Person Test.
Hurricane Katrina.
The special rule for a spouse who is a full-time student may still apply if he or she was unable to attend classes because of Hurricane Katrina.
See Rule for student-spouse or spouse not able to care for self.
RemindersTaxpayer identification number needed for each qualifying person.Taxpayer identification number (TINs)
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.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.Missing children, photographs of
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.
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 35% 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.Care:Dependent care benefitsDependent care benefitsEmployer-provided dependent care benefitsExclusion from income:Employer-provided 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 Dependent Care Benefits
under How To Figure the Credit, later.
Comments and suggestions.Comments on publicationSuggestions for publication
We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224
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You can email us at
*taxforms@irs.gov. (The asterisk must be included in the
address.) Please put Publications Comment on the subject line. Although we cannot respond individually to each email, we do appreciate your
feedback and will consider your comments as we revise our tax products.
Tax questions.
If you have a tax question, visit
www.irs.gov or call 1-800-829-1040. We cannot answer tax questions at either
of the addresses listed above.
Ordering forms and publications.
Visit
www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the National Distribution Center at the
address shown under How To Get Tax Help in the back of this publication.
Publication501Exemptions, Standard Deduction, and Filing Information926Household Employer's Tax GuideForm (and Instructions)Child and Dependent Care ExpensesChild and Dependent Care Expenses for Form 1040A FilersHousehold Employment TaxesDependent Care Provider's Identification and Certification
See How To Get Tax Help, near the end of this publication, for information about getting these publications and forms.
Tests To Claim the CreditTests to claim creditClaiming of credit:Tests to claim credit (Figure A)Earned income test:Determination (Figure A)Figures:Tests to claim credit (Figure A)Tests to claim credit:Determination (Figure A)Form 1040:Claiming the creditForm 1040A:Claiming 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.
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.)
Qualifying person test:Tests to claim credit (Figure A)
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.)
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.)
Work-related expense test:Tests to claim credit (Figure A)
You must make payments for child and dependent care to someone you (and 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. You cannot make payments to your spouse or to the
parent of your qualifying child who is your qualifying person and is under age 13. (See Payments to Relatives under Work-Related
Expense Test, later.)
Relatives, payments to:Tests to claim credit (Figure A)
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.
Filing status:Tests to claim credit (Figure A)Joint return test:Tests to claim credit (Figure A)
You must identify the care provider on your tax return. (See Provider Identification Test, later.)
Provider identification test:Tests to claim credit (Figure A)
If you exclude or deduct dependent care benefits provided by a dependent care benefit 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). (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. See Reduced Dollar Limit under How To Figure the
Credit, later.)
Dollar limit:Reduced dollar limitLimits:Reduced dollarReduced dollar limit:Tests to claim credit (Figure A)These tests are presented in Figure A and are also explained in detail in this publication.
Figure A. Can You Claim the Credit?Summary: This is a flowchart used to determine if the taxpayer can claim the child and dependent care credit.StartThis is the start of the flowchart.Decision (1)Was the care for one or more qualifying persons?IF Yes Continue To Decision (2)IF No Continue To Process (a)Decision (2)Did you (see Footnote 1) have earned income during the year?Footnote 1: This also applies to your spouse, unless your spouse was disabled or a full-time student.IF Yes Continue To Decision (3)IF No Continue To Process (a)Decision (3)Did you pay the expenses to allow you (see Footnote 1) to work or look for work?Footnote 1: This also applies to your spouse, unless your spouse was disabled or a full-time student.IF Yes Continue To Decision (4)IF No Continue To Process (a)Decision (4)Were your payments made to someone you or your spouse could claim as a dependent?IF Yes Continue To Process (a)IF No Continue To Decision (5)Decision (5)Were your payments made to your child who was under the age of 19 at the end of the year?IF Yes Continue To Process (a)IF No Continue To Decision (6)Decision (6)Were your payments made to your spouse or to the parent of your qualifying child who is your qualifying person and is under age 13?IF Yes Continue To Process (a)IF No Continue To Decision (7)Decision (7)Are you single?IF Yes Continue To Decision (10)IF No Continue To Decision (8)Decision (8)Are you filing a joint return?IF Yes Continue To Decision (10)IF No Continue To Decision (9)Decision (9)Do you meet the requirements to be considered unmarried?IF Yes Continue To Decision (10)IF No Continue To Process (a)Decision (10)Do you know the care provider's name, address, and identifying number?IF Yes Continue To Decision (12)IF No Continue To Decision (11)Decision (11)Did you make a reasonable effort to get this information? (See Due diligence.)IF Yes Continue To Decision (12)IF No Continue To Process (a)Decision (12)Did you have only one qualifying child and exclude or deduct at least $3,000 of dependent care benefits?IF Yes Continue To Process (a)IF No Continue To Process (b)Process (a)You CANNOT claim the child and dependent care credit.Footnote 3: If you had expenses that met the requirements for 2004, except that you did not pay them until 2005, you may be able to claim
those expenses in 2005. See Expenses not paid until the following year under How To Figure the Credit.Continue To EndProcess (b)You CAN claim the child and dependent care credit. Fill out Form 2441 or Schedule 2 (Form 1040A).Continue To EndEndThis is the end of the flowchart.
Qualifying Person TestTests to claim credit:Qualifying personsQualifying person test
Your child and dependent care expenses must be for the care of one or more qualifying persons.
A qualifying person is:
Your qualifying child who is your dependent and who was under age 13 when the care was provided,
DependentsQualifying person test
Your spouse who was physically or mentally not able to care for himself or herself and lived with you for more than half the year, or
Children:Under age 13Disabilities, persons with:SpouseNot able to care for self:SpouseSpouse:Not able to care for selfSpouse:Qualifying person
A person who was physically or mentally not 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 $3,200 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 2005 return.
Children:Physically or mentally disabledDisabilities, persons with:Dependents
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.
Dependent defined.Dependent defined
A dependent is a person, other than you or your spouse, for whom you can claim an exemption. To be your dependent, a person must be your qualifying
child (or your qualifying relative).
Qualifying child.Qualifying child
To be your qualifying child, a child must live with you for more than half the year and meet other requirements.
More information.
For more information about who is a dependent or a qualifying child, see Publication 501.
Physically or mentally not able to care for oneself.Disabilities, persons with:Physically or mentally not able to care for selfNot able to care for self:Qualifying person test
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.Part of year:Persons qualifying for
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.Taxpayer identification number (TINs)
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.AliensIndividual taxpayer identification numbers (ITINs):For aliensTaxpayer identification number (TINs):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 does not have an ITIN, he or she must apply for one. See Form
W-7, Application for IRS Individual Taxpayer Identification Number, for details.
Form W-7
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).Adoption:Taxpayer identification numberTaxpayer identification number (TINs):Adoption
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.
Child of divorced or separated parents.Children:Divorced or separated parentsDivorced parentsSeparated parents
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 physically or mentally not able to care for himself or herself,
You were the child's custodial parent (the parent with whom the child lived for the greater part of 2005), and
The noncustodial parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated
parents.
If this applies, the noncustodial parent cannot treat the child as a qualifying person.
To find out when a noncustodial parent is entitled to claim the dependency exemption for a child, see Publication 501.
Qualifying person testDivorced parentsSeparated parents
Earned Income TestTests to claim credit:Earned incomeEarned income test
To claim the credit, you (and your spouse if you are married) must have earned income during the year.
Earned income includes wages, salaries, tips, other taxable 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.
Earned income also includes nontaxable employee compensation such as parsonage allowances, meals and lodging furnished for the convenience of the
employer, voluntary salary deferrals (such as deferrals under a nonqualified deferred compensation plan reported on Form W-2 in box 12 with code Y),
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.Religious faiths opposed to social security programsSocial Security:Religious faiths opposed to
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, and
Form 4361
Form 4029, Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits, for use by members of recognized
religious groups.
Form 4029
Each form is discussed in this section in terms of what is or is not earned income for purposes of the child and 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.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 a
housing allowance 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.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:What is notUnearned 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.Disabilities, persons with:SpouseEarned income:Nonworking spouseNot able to care for self:SpouseSpouse:Nonworking, earned incomeSpouse:Not able to care for selfSpouse:StudentStudents:Spouse
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. (Your spouse also must live with you for more than half the
year.)
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.Students:Full-time
Earned income testYou 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 enrolled in school before August 25, 2005, you are treated as a full-time student for any month of the enrollment period you were unable to
attend classes because of Hurricane Katrina.
Hurricane Katrina
School.
The term school includes elementary schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical
schools. A school does not include an on-the-job training course, correspondence schools, or Internet school.
Work-Related Expense TestTests to claim credit:Work-related expensesWork-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 WorkLooking for workDisabilities, persons with:SpouseNot able to care for self:SpouseSpouse:Not able to care for self
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.Volunteer work
For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary.
Work for part of year.Part of year:Work or looking for work
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 $250 a month ($3,000 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 $250 a month, your work-related expenses are limited to $625 (2 months × $250).
Payments while you are out sick.Illness:Work-related expenses duringSickness, work-related expenses during
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.
Care of a Qualifying PersonCare:Qualifying personQualifying person:Care for
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.
Household servicesExpenses 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:Not for careQualifying person: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.
Expenses for a child in nursery school, pre-school, or similar programs for children below the level of kindergarten are expenses for care.
Expenses to attend kindergarten 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 childcare 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.Care:Outside homeOutside of home care
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.Dependent care centers
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.Camp, overnight
The cost of sending your child to an overnight camp is not considered a work-related expense.
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.
Transportation.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.
Household ServicesHousehold 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.Domestic helpHousekeepers
In this publication, the term housekeeper refers to any household employee whose services include the care of a qualifying person.
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.Meals and lodging 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.
Household servicesTo 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.Employment taxesTaxes on wagesEmployment taxesWages, taxes onEmployment taxes
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 or DependentsChildren:Work-related expense payments to relativesRelatives, payments to
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:
A dependent for whom you (or your spouse if you are married) can claim an exemption,
Your child who is under age 19 at the end of the year, even if he or she is not your dependent,
Your spouse, or
The parent of your qualifying child who is your qualifying person and is under age 13.
Work-related expense test
Joint Return TestFiling status:Joint return testJoint 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.Separated parents
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.Married and living apart
You are not considered married and are eligible to take the credit if all the following apply.
You file a separate return.
Your home is the home of a qualifying person for more than half the year.
You pay more than half the cost of keeping up your home for the year.
Your spouse does not live in your home for the last 6 months of the year.
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.
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.
Joint return testDeath of spouse.Death of spouseSpouse:Death of
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 TestCare:Provider identificationIdentification of providerProvider 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:
Name,
Address, and
Taxpayer identification number.
Taxpayer identification number (TINs):Providers
Social security numbersIf 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, enter Tax-Exempt in the space where the tax form calls for the number.
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.
Form W-10You 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:
A copy of the provider's social security card,
A copy of the provider's driver's license (in a state where the license includes the social security number),
A copy of the provider's completed Form W-4, Employee's Withholding Allowance Certificate, 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 necessary information.
You should keep this information with your tax records. Do not send Form W-10 (or other document containing this information) to the Internal
Revenue Service.
Due diligence.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.Refusal by provider to give information
Provider identification testTests to claim creditIdentification of provider 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.
How To Figure the CreditExpenses:Work-related expensesCalculation of creditFiguring 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.
Figuring Total
Work-Related ExpensesWork-related expenses:Figuring of credit
To figure the credit for 2005 work-related expenses, count only those you paid by December 31, 2005.
Expenses prepaid in an earlier year.Expenses:PrepaidPrepaid expensesWork-related expenses:Prepaid
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.Work-related expenses:Paid following year
Do not count 2004 expenses that you paid in 2005 as work-related expenses for 2005. You may be able to claim an additional credit for them on your
2005 return, but you must figure it separately. See Payments for previous year's expenses under Amount of Credit, later.
If you had expenses in 2005 that you did not pay until 2006, you cannot count them when figuring your 2005 credit. You may be able to claim a
credit for them on your 2006 return.
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.Expenses:MedicalMedical expensesWork-related expenses:Medical
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.
Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction.
Dependent Care BenefitsCare:Employer-provided benefitsDependent care benefitsEmployer-provided dependent care benefits
If you receive dependent care benefits, your dollar limit for purposes of the credit may be reduced. See Reduced Dollar Limit, later.
But, even if you cannot take the credit, you may be able to take an exclusion or deduction for the dependent care benefits.
Dependent care benefits.
Care:Dependent care benefitsDependent care benefits include:
Amounts paid directly to either you or your care provider for the care of your qualifying person while you work, and
The fair market value of care in a daycare 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.
Benefits you received as a partner should be shown in box 13 of your Schedule K-1 (Form 1065) with code O. Enter the amount of these benefits on
Form 2441, line 12.
Exclusion or deduction.Exclusion from income:Employer-provided dependent care benefits
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 you are self-employed and receive benefits from a qualified dependent care benefit plan, you are treated as both employer and employee.
Therefore, you would not get an exclusion from wages but instead a deduction on Form 1040, Schedule C, line 14; Schedule E, line 18; or Schedule F,
line 17.
If your plan qualifies, you must complete Part III of either Form 2441 or Schedule 2 (Form 1040A) to claim the exclusion. You cannot use Form
1040EZ. You must use Form 2441 to claim the deduction.
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).
Earned income:Dependent care benefitsDependent Care Benefits:Earned incomeFiguring earned income.
When figuring your exclusion or deduction, the definition of earned income is not exactly the same as the definition used when figuring the credit
for child and dependent care expenses.
Combat pay electionGenerally, only taxable compensation is included. However, you can elect to include nontaxable combat pay in
earned income. If you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. If
you are filing a joint return and both you and your spouse received nontaxable combat pay, you can each make your own election. You should figure your
exclusion or deduction both ways and make the election if it gives you a greater tax benefit.
Note.
Earned income does not include any dependent care benefits you receive.
Statement for employee.Form W-2:Dependent care benefits
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 on your Form W-2 in box
1.
Effect of exclusion.
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.
Earned Income LimitEarned income:Limit onLimits:Earned incomeWork-related expenses: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.
Earned income for the purposes of figuring the credit is defined under Earned Income Test, earlier.
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.Separated spouseSpouse:Separated
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.Spouse:Surviving
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.Community property
Disregard community property laws when you figure earned income for this credit.
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
Form 1040, line 27. Include your self-employment earnings in earned income, even if they are less than $400 and you did not file Schedule SE.
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.Earned income:Net lossLosses
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 334, Tax Guide for Small Business, 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.
Student-spouse or spouse not able to care for self.Disabilities, persons with:SpouseNot able to care for self:SpouseSpouse:Not able to care for selfSpouse:StudentStudents:Spouse
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 $250 if there is one qualifying person in your home, or at least $500 if there are two or more.
Spouse works.Spouse:Working
If your spouse works during that month, use the higher of $250 (or $500) 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 $250 (or $500) still applies
for that month.
Both spouses qualify.Spouse:Both spouses qualifying
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.
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 $3,300 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 Limit1) Work-related expenses Jim paid$3,3002) Jim's earned income$29,0003) Income considered earned by Sharon
(11 × $250)$2,750
Jim and Sharon can use $2,750 to figure the credit and treat the balance of $550 ($3,300 − $2,750) as a medical expense. However, if
they use the $3,300 first as a medical expense, they cannot use any part of that amount to figure the credit.
Dollar LimitLimits:DollarDollar limit
There is a dollar limit on the amount of your work-related expenses you can use to figure the credit. This limit is $3,000 for one qualifying
person, or $6,000 for two or more qualifying persons.
If you paid work-related expenses for the care of two or more qualifying persons, the $6,000 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 $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.
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 $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year.
Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year.
Example.
Dollar limitIn 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 childcare. You paid $300 per month for the childcare. You can use the full $1,800 you paid ($300 × 6
months) as qualified expenses because it is not more than the $3,000 yearly limit.
Reduced Dollar LimitDollar limit:Reduced dollar limitLimits:Reduced dollarReduced 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. Your reduced dollar limit is figured on lines 28 through 32 of Form 2441 or lines 22 through 26 of Schedule 2 (Form 1040A). See
Dependent Care Benefits, earlier, for information on excluding or deducting these benefits.
Example.
George is a widower with one child and earns $24,000 a year. 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. 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 $3,000 (one qualifying person), George figures his credit on only $2,000 of the $2,900
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$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$2,000
Amount of CreditAmount of credit
To determine the amount of your credit, multiply your work-related expenses (after applying the earned income and dollar limits) by a percentage.
This percentage depends on your adjusted gross income shown on Form 1040, line 38, or Form 1040A, line 22. The following table shows the percentage to
use based on adjusted gross income.
IF your adjusted gross income is:THEN the Over:But not over:percentage is:$ 0—$15,00035%15,000—17,00034%17,000—19,00033%19,000—21,00032%21,000—23,00031%23,000—25,00030%25,000—27,00029%27,000—29,00028%29,000—31,00027%31,000—33,00026%33,000—35,00025%35,000—37,00024%37,000—39,00023%39,000—41,00022%41,000—43,00021%43,000—No limit20%
Payments for previous year's expenses.Work-related expenses:Paid following year
If you had work-related expenses in 2004 that you paid in 2005, you may be able to increase the credit on your 2005 return. Attach a statement to
your form showing how you figured the additional amount from 2004. Then enter CPYE and the amount of the credit on the dotted line next to line
9 on Form 2441 or in the space to the left of line 9 on Schedule 2 (Form 1040A). Also enter 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.
Example.
In 2004, Sam and Kate had childcare expenses of $2,600 for their 12-year-old child. Of the $2,600, they paid $2,000 in 2004 and $600 in 2005. Their
adjusted gross income for 2004 was $30,000. Sam's earned income of $14,000 was less than Kate's earned income. A credit for their 2004 expenses paid
in 2005 is not allowed in 2004. It is allowed for the 2005 tax year, but they must use their adjusted gross income for 2004 to compute the amount. The
worksheet they use to figure this credit is shown on page 13.
Calculation of creditFiguring creditAmount of creditSam and Kate add the $162 from line 13 of this worksheet to their 2005 credit and enter the total on
line 9 of their Schedule 2 (Form 1040A). They enter CPYE $162 and their child's name and SSN in the space to the left of line 9.
How To Claim the CreditClaiming of credit
To claim the credit, you can file Form 1040 or Form 1040A. You cannot claim the credit on Form 1040EZ.
Form 1040.Form 1040:Claiming the credit
Form 2441You must complete Form 2441 and attach it to your Form 1040. Enter the credit on your Form 1040, line 48.
Form 1040A.Form 1040A:Claiming the credit
Form 1040A, Schedule 2You must complete Schedule 2 (Form 1040A) and attach it to your Form 1040A. Enter the credit on Form
1040A, line 29.
Limit on credit.Amount of credit:Limit onLimits:Amount of credit
Alternative minimum tax (AMT)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.
Tax credit not refundable.Nonrefundability of credit
You cannot get a refund for any part of the credit that is more than this limit.
Recordkeeping requirementsWork-related expenses:RecordkeepingClaiming of creditRecordkeeping. You should keep records of your work-related expenses. Also, if your
dependent 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.
Employment Taxes for
Household EmployersEmployment taxesHousehold services:Employment taxes
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 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:
Social security and Medicare taxes,
Social security:Employment taxes
Federal unemployment tax, and
Federal income tax withholding.
Withholding:Federal income taxSocial 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.
Expenses:2004 expenses paid in 2005 (Worksheet A)Work-related expenses:Paid following yearWorksheets:2004 expenses paid in 2005 (Worksheet A)
<ROM>Worksheet A.</ROM>
<IMARK>Worksheet for 2004 Expenses Paid in 2005Use this worksheet to figure the credit you may claim for 2004 expenses paid in 2005.1.Enter your 2004 qualified expenses paid in 20041.2.Enter your 2004 qualified expenses paid in 20052.3.Add the amounts on lines 1 and 23.4.Enter $3,000 if care was for one qualifying person ($6,000 if for two or more)4.5.Enter any dependent care benefits received for 2004 and excluded from your income (from line 26
of 2004 Form 2441 or line 20 of 2004 Schedule 2 (Form 1040A))5.6.Subtract amount on line 5 from amount on line 4 and enter the result6.7.Compare your earned income for 2004 and your spouse's earned income for 2004 and enter the
smaller amount7.8.Compare the amounts on lines 3, 6, and 7 and enter the smallest amount8.9.Enter the amount on which you figured the credit for 2004 (from line 6 of 2004 Form 2441 or
Schedule 2 (Form 1040A))9.10.Subtract amount on line 9 from amount on line 8 and enter the result. If zero or less, stop
here. You cannot increase your credit by any previous year's expenses10.11.Enter your 2004 adjusted gross income (from line 37 of your 2004 Form 1040 or line 22 of your
2004 Form 1040A)11.12.Find your 2004 adjusted gross income in the table below and enter the corresponding decimal
amount here12.IF your 2004 adjusted gross income is:THEN the decimalOver:But not over: amount is:$ 0—$15,000 .3515,000—17,000.3417,000—19,000.3319,000—21,000.3221,000—23,000.3123,000—25,000.3025,000—27,000.2927,000—29,000.2829,000—31,000.2731,000—33,000.2633,000—35,000.2535,000—37,000.2437,000—39,000.2339,000—41,000.2241,000—43,000.2143,000—No limit.2013.Multiply line 10 by line 12. Add this amount to your 2005 credit and enter the total on line 9
of your 2005 Form 2441 or Schedule 2 (Form 1040A). Enter the following on the dotted line next to line 9 of Form 2441 or in the space to the left of
line 9 on Schedule 2 (Form 1040A):
CPYE
The amount of this credit for a prior year's expenses
The name and taxpayer identification number of the person for whom you paid the prior year's expenses
13.
<ROM>Worksheet A.</ROM>
<IMARK>Worksheet for 2004 Expenses Paid in
<L>2005—IllustratedUse this worksheet to figure the credit you may claim for 2004 expenses paid in 2005.1.Enter your 2004 qualified expenses paid in 20041.$2,0002.Enter your 2004 qualified expenses paid in 20052.6003.Add the amounts on lines 1 and 23.2,6004.Enter $3,000 if care was for one qualifying person ($6,000 if for two or more)4.3,0005.Enter any dependent care benefits received for 2004 and excluded from your income (from line 26
of 2004 Form 2441 or line 20 of 2004 Schedule 2 (Form 1040A))5.06.Subtract amount on line 5 from amount on line 4 and enter the result6.3,0007.Compare your earned income for 2004 and your spouse's earned income for 2004 and enter the
smaller amount7.14,0008.Compare the amounts on lines 3, 6, and 7 and enter the smallest amount8.2,6009.Enter the amount on which you figured the credit for 2004 (from line 6 of 2004 Form 2441 or
Schedule 2 (Form 1040A))9.2,00010.Subtract amount on line 9 from amount on line 8 and enter the result. If zero or less, stop
here. You cannot increase your credit by any previous year's expenses10.60011.Enter your 2004 adjusted gross income (from line 37 of your 2004 Form 1040 or line 22 of your
2004 Form 1040A)11.30,00012.Find your 2004 adjusted gross income in the table below and enter the corresponding decimal
amount here12..27IF your 2004 adjusted gross income is:THEN the decimalOverBut not over amount is:$ 0—$15,000 .3515,000—17,000.3417,000—19,000.3319,000—21,000.3221,000—23,000.3123,000—25,000.3025,000—27,000.2927,000—29,000.2829,000—31,000.2731,000—33,000.2633,000—35,000.2535,000—37,000.2437,000—39,000.2339,000—41,000.2241,000—43,000.2143,000—No limit.2013.Multiply line 10 by line 12. Add this amount to your 2005 credit and enter the total on line 9
of your 2005 Form 2441 or Schedule 2 (Form 1040A). Enter the following on the dotted line next to line 9 of Form 2441 or in the space to the left of
line 9 on Schedule 2 (Form 1040A):
CPYE
The amount of this credit for a prior year's expenses
The name and taxpayer identification number of the person for whom you paid the prior year's expenses
13.$162
ExamplesCalculation of credit:ExamplesFiguring credit: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.
Example 1.
Childcare — Two ChildrenCare:Example calculation
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.
During the year, they pay work-related expenses of $3,000 for childcare for their son Daniel at a neighbor's home and $3,200 for childcare for
their daughter Amy at Pine Street Nursery School.
They figure their credit on Schedule 2 as follows.
1)Childcare provided by their neighbor$3,0002)Childcare provided by the nursery school+3,2003)Total work-related expenses$6,2004)Dollar limit$6,0005)Lesser of expenses paid ($6,200) or dollar limit
($6,000)$6,0006)Percentage for AGI of $27,500 (28%).287)Multiply the amount on line 5 by the percentage on line 6 ($6,000 x .28)$1,6808)Enter the amount from line 28 of Form 1040A$ 4739)Credit
(Enter the smaller of line 7 or line 8)$473
The amount of credit they can claim is limited to their tax, $473.
Example 2.
Dependent Care BenefitsCare:Dependent care benefitsDependent care benefits:Example calculation
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.
Joan's younger child (Susan) stays at her employer's on-site childcare center while she works. The benefits from this childcare 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 on her Form W-2 in box 10,
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.
1)Work-related expenses Joan paid$2,4002)Dollar limit (2 or more qualified individuals)$6,0003)Minus: Dependent care benefits excluded from Joan's income−3,0004)Reduced dollar limit$3,0005)Lesser of expenses paid ($2,400) or dollar limit ($3,000)$2,4006)Percentage for AGI of $29,000 (28%).287)Multiply the amount on line 5 by the percentage on line 6 ($2,400 x .28)$ 6728)Enter the amount from Form 1040, line 46
