What's wrong with my Child Care Credit?

Question

Why is that when I enter Child Care Credit $8000 that I paid last year for day care on my tax return, the number changes from "I Owe Tax" from $2,443 to $4,087? I thought it should reduce what I owe but it went the other way. How is this possible? Am I entering this in the wrong place? Thanks.

I'm using Form 2441 to enter my child care expenses. Is this the correct form? Thanks.

He is 2 years old and go to a real day care. I have the Tax Statement that the daycare provided how much we paid for the entire year. I'm using TaxSlayer.com. When I change the daycare deduction from $0 to $8000, my calculated income increases by $5000 automatically. Why does it think my income increases? Any thought? Thanks for your help.

Oh.. forgot. I also have $5000 FSA last year.

Answer 1

If your $5,000 FSA paid for child care, you cannot take the Dependent and Child Care Credit. By taking the Child Care Credit, your software is making the FSA taxable.

So obviously you don't want to do that. Omit Form 2441.

For more explanation, read the instructions to Form 2441.

http://www.irs.gov/instructions/i2441/index.html

Answer 2

Yes, it should reduce your taxes owed not add to them, but only a percentage of the money you spent, and there is a max per child regardless of how much you spent. It is not a dollar for dollar credit either. If I recall correctly, the max is about 35% of monies spent with a max per child of $3,000. This is a somewhat tricky credit to claim due to several aspects that effect it. For example, if you work for a company that provides a child care benefit and you claim it, then you must reduce your monetary claim by that amount, but it's pretty rare to find a company like that (I believe it shows up in Box 10 on your W-2 but I'm doing this from memory since I'm at home not work). Do you have the Social Security number or Employer's Indentification Number (tax number) for the child care provider so the IRS can be sure the recepient of the money pays taxes on it? If not, you have to show "due dilligence" that you attempted to get the number and provide enough information so the IRS can identify who you gave the money to. You didn't say what software you are using, but my software at work (I'm a tax preparer) won't allow you to claim the credit if you don't also enter that. Is the child under age 13? Was the provider of the care related to you? If so, more questions must be answered before you can qualify for the credit. If the care was provided by a "live in", more questions must be answered to be sure the provider wasn't your employee (in which case you owe Social Security and MediCare taxes) instead of a "for profit, independent business". Does the day care include educational aspects too? Kindergarden for example has a test that must be met as school attendence isn't deductible. The credit has other limitations too. Some frequently asked questions are answered at: http://www.irs.gov/faqs/faq7-1.html. Also you can call the company that wrote the software you are using for help. I would suggest you go to the part of the software that deals with the child care credit and be sure you answer each and every question leaving none blank. Hope this helps.

Answer 3

The child/daycare credit is calculated on Form 2441. You can enter a maximum of $3,000 of expenses per child. The maximum credit you can receive for this is $600. Its not a dollar for dollar deduction. Check over form 2441.

Also, are you sure its not going from "amount owed" to "amount refunded"? In Turbotax the amounts owed/refunded are different colors, red and green.

Answer 4

The child care credit and child care expenses are two different things.
You need to fill out the child care credit worksheet using the amount you paid. After you follow all of the steps on the worksheet, you will have a correct amount to put on your return.

Answer 5

There's your problem! You cannot use FSA monies to take the child care credit! You must reduce your expense by the FSA amounts used. Your maximum child care expense amount is $3,000.