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The changes to the child and dependent care tax credit introduced in 2021 under the American Rescue Plan Act temporarily made the tax credit refundable.
From the 2022 tax year, this tax credit is once again non-refundable, meaning that you can only submit IRS Form 2441 if you owe taxes. It’s one of many requirements you must meet if you want to use this tax credit to reduce your tax liability.
This Child & Dependent Care credit is only available to taxpayers with earned income during the year, so you won’t be able to claim it if Social Security retirement benefits, pension, or some other form of unearned income is your only source of income during a tax period.
Our guide to child & dependent care will show you how to check if you’re eligible for this tax credit and how to calculate this credit on IRS Form 2441.
Key Points
- IRS Form 2441 lets taxpayers calculate the child & dependent care tax credit they want to claim on their tax returns.
- The maximum amount you can claim on this form is $3,000 for one qualifying person or $6,000 for two or more qualifying persons.
- You’ll need information from Form 1040, Form 1040-NR, or Form 1040-SR to prepare IRS Form 2441.
Table of Contents
The Purpose of IRS Form 2441
Taxpayers who paid for childcare services so that they can work or look for employment can calculate these expenses on IRS Form 2441. Moreover, the form allows taxpayers who receive childcare benefits to work out the portion of these benefits they can exclude from their income.
The maximum credit amount depends on your earned income and the percentage of childcare expenses you’re eligible to claim.
Hence, you’re ineligible for this tax credit if 100% of your annual income is unearned and comes from capital gains or unemployment compensation.
You can claim up to 20% of your childcare expenses if your adjusted gross income is $43,000 or higher. Taxpayers whose adjusted gross income is under $15,000 can claim 35% of their qualifying childcare expenses.
The tax credit limit for one qualifying person is $3,000. But if you pay care providers for two or more qualifying persons, you can claim up to $6,000.
Taxpayers with single, head of household, married filing jointly, or qualifying surviving spouse filing statuses can complete Form 2441. You’re ineligible for this tax credit if the care provider is your spouse, parent, or dependent you can claim on your tax return.
It’s also worth noting that the child & dependent care credit isn’t refundable like the Child Tax Credit, and you can only use it to reduce your tax liability dollar-for-dollar. However, the amount remaining once your tax liability is reduced to zero won’t be added to your tax refund.
Understanding Filing Eligibility and Qualified Expenses
Familiarity with child & dependent care tax credit rules is essential when determining whether you should file Form 2441. Completing this form doesn’t mean the IRS will allow the tax credit.
The form is only used to calculate the tax credit amount you can potentially claim. But it’s up to the IRS to decide if you meet all the criteria.
Qualifying persons you list on Form 2441 must meet the requirements below:
- A taxpayer’s child claimed as dependent on a tax return must be under 13 to be considered a qualifying person. A child is a qualifying person for the portion of the year before its birthday if the child turns 13 during a tax year.
- Disabled spouses who cannot take care of themselves either mentally or physically and live with a taxpayer for more than six months qualify for this form.
- All disabled individuals a taxpayer can claim as dependents on their tax return. However, a taxpayer cannot claim this credit if a disabled person’s gross income is higher than $4,400 or if they file a joint return.
A Quick Overview of Qualified Expenses
The Form 2441 Instruction booklet defines qualified expenses as’ amounts paid for care of the qualifying person or household services while you worked or looked for work.’
Self-employed individuals and taxpayers employed by companies can use this tax credit to claim qualified expenses. The IRS doesn’t recognize costs reimbursed by a state social service agency or child support payments as qualified expenses.
You must calculate your daily expenses if you didn’t work during the entire period for which you claim the tax credit. The following services meet the criteria for qualified expenses:
1. Household Services
The costs of hiring babysitters, cleaners, or cooks are considered qualified expenses if the services were provided to care for a qualifying person and run a household while a taxpayer was at work. Employment taxes you pay for household care employees can be added to qualified expenses.
2. Care for Qualifying Persons
These expenses usually include care for a qualifying person outside your home. You cannot add the costs of accommodation, education, or food to qualified expenses for the care of qualifying persons.
3. Medical Expenses
Taxpayers who itemize deductions on Schedule A (Form 1040) can claim some costs of medical treatment they pay for their disabled spouses as dependent care expenses on Form 244, but only if they don’t claim these costs as medical expenses.
You can use Form 2441 to calculate how much dependent care benefits you can exclude from your income.
These benefits include the costs of care in a daycare facility paid by your employer or the costs of care for a qualifying person your employer paid to you or the care provider.
Taxpayers who make pre-tax contributions to dependent care FSA can treat these contributions as dependent care benefits.
How to Fill Out IRS Form 2441?
The documents you’ll need to complete IRS Form 2441 depend on several factors. But in all cases, you’ll need the exact amounts you paid to caretakers to fill out this form correctly.
You may need information from Form W2 and other federal tax forms to calculate the child & dependent care tax credit amount you can claim on your tax return.
Form 2441 has three parts, so here’s a quick summary.
Part I – Persons or Organizations Who Provided the Care
Enter your name and SSN at the top of the form’s first page before filling out this section. Completing this part of the form is mandatory for all filers because you must provide information about each care provider.
Besides the provider’s name, address, SSN, or EIN, and the amount you paid for their services, you must also indicate if the care provider is your household employee. In addition, you must declare if you received dependent care benefits during the tax period.
Part II – Credit for Child and Dependent Care Expenses
The first segment of this section collects information about qualifying persons, and you can proceed to calculate the credit amount after you complete it.
Don’t forget that you cannot determine the decimal amount on Line 8 without information from Line 11 on Form 1040, Form 1040-NR, or 1040-SR.
Part III – Dependent Care Benefits
You’ll need the most recent version of Form W2 you received from your employer to fill out the third part of Form 2441 because you must enter the amount from Form W2’s Line 10 on Form 2441’s Line 12.
You should also report your total qualified expenses for the tax year and earned income and calculate deductible, excluded, and taxable benefits in this section of Form 2441. The section’s last segment lets you calculate the child & dependent tax credit amount you can claim.
Please note that you must fill out lines 27 through 31 even if you’re not required to complete the rest of the form’s Part III.
IRS Form 2441 – Filing Methods and Due Dates
E-filers can use tax software to complete Form 2441 and file their tax return electronically before the April 15 filing deadline. You can also download the form from the IRS website, print it, and fill out its paper version.
The mailing address will depend on where you live. However, remember that the IRS might only allow the credit if you include Form 2441 with Form 1040 and other documents you must submit when filing the return.
Frequently Asked Questions
Claiming child & dependent care tax credit can sometimes delay your refund because the IRS might audit your return to ensure your claim is credible.
You cannot file Form 2441 to claim this tax credit if your filing status is married filing separately unless you haven’t lived with your spouse for more than six months, the qualified person lived in your home for over six months, and you cover at least a half of your home’s upkeep.
Getting Form W-10 from the care provider will ensure that the information you enter on Form 2441 is accurate, but you don’t have to send Form W-10 to the IRS.
The cost of sending a child to a day camp is a qualified expense, but the costs of overnight camps or summer schools don’t meet qualified expense requirements.
Using IRS Form 2441 to Calculate Child & Dependent Care Tax Credit
It’s only natural to want your children or dependents to have the best care possible while you’re working. These services are often expensive, and you may have to spend thousands of dollars yearly to ensure your loved ones are in good hands.
Completing IRS Form 2441 can help you get back a percentage of your annual child and dependent care expenses, but only if you’re eligible to claim this tax credit.
Determining the maximum credit amount you can claim can be tricky. But a tax preparer can help you figure out if you’re eligible for the child & dependent care tax credit and complete Form 2441 for you.
Author:
Logan is a practicing CPA and founder of Choice Tax Relief and Money Done Right. After spending nearly a decade in the corporate world helping big businesses save money, he launched his blog with the goal of helping everyday Americans earn, save, and invest more money. Learn more about Logan.
