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IRS.gov Website
Publication 503
taxmap/pubs/p503-001.htm#en_us_publink1000203335

How To Figure the Credit(p9)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203336

Figuring Total Work-Related
Expenses(p9)

rule
To figure the credit for 2013 work-related expenses, count only those you paid by December 31, 2013.
taxmap/pubs/p503-001.htm#en_us_publink1000203337

Expenses prepaid in an earlier year.(p9)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203338

Expenses not paid until the following year.(p9)

rule
Do not count 2012 expenses that you paid in 2013 as work-related expenses for 2013. You may be able to claim an additional credit for them on your 2013 return, but you must figure it separately. See Payments for prior year's expenses under Amount of Credit, later.
Tax Tip
If you had expenses in 2013 that you did not pay until 2014, you cannot count them when figuring your 2013 credit. You may be able to claim a credit for them on your 2014 return.
taxmap/pubs/p503-001.htm#en_us_publink1000203340

Expenses reimbursed.(p9)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203341

Example.(p9)

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.
taxmap/pubs/p503-001.htm#en_us_publink1000203342

Medical expenses.(p9)

rule
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.
EIC
Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction.
taxmap/pubs/p503-001.htm#en_us_publink1000203344

Dependent Care Benefits(p9)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203345

Dependent care benefits.(p9)

rule
Dependent care benefits include:
  1. Amounts your employer paid directly to either you or your care provider for the care of your qualifying person while you work,
  2. The fair market value of care in a daycare facility provided or sponsored by your employer, and
  3. Pre-tax contributions you made under a dependent care flexible spending arrangement.
Your salary may have been reduced to pay for these benefits. If you received benefits as an employee, they should be shown in box 10 of 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, Part III, line 12.
taxmap/pubs/p503-001.htm#en_us_publink1000203346

Exclusion or deduction.(p9)

rule
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. To claim the exclusion, you must complete Part III of Form 2441. You cannot use Form 1040EZ.
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. Instead, you would get a deduction on Form 1040, Schedule C, line 14; Schedule E, line 19 or 28; or Schedule F, line 15. To claim the deduction, you must use Form 2441.
The amount you can exclude or deduct is limited to the smallest of:
  1. The total amount of dependent care benefits you received during the year,
  2. The total amount of qualified expenses you incurred during the year,
  3. Your earned income,
  4. Your spouse's earned income, or
  5. $5,000 ($2,500 if married filing separately).
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.
Tax Tip
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203348

Statement for employee.(p10)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203349

Effect of exclusion on credit.(p10)

rule
If you exclude dependent care benefits from your income, the amount of the excluded benefits:
  1. Is not included in your work-related expenses, and
  2. Reduces the dollar limit, discussed later.
taxmap/pubs/p503-001.htm#en_us_publink1000203350

Earned Income Limit(p10)

rule
The amount of work-related expenses you use to figure your credit cannot be more than:
  1. Your earned income for the year, if you are single at the end of the year, or
  2. 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 purpose of figuring the credit is defined under Earned Income Test, earlier.
Tax Tip
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203352

Example.(p10)

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).
taxmap/pubs/p503-001.htm#en_us_publink1000203353

Separated spouse.(p10)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203354

Surviving spouse.(p10)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203355

Community property laws.(p10)

rule
Disregard community property laws when you figure earned income for this credit.
taxmap/pubs/p503-001.htm#en_us_publink1000203356

Self-employment earnings.(p10)

rule
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 Schedule SE (either Section A or Section B), line 3, minus any deduction for self-employment tax on Form 1040 or Form 1040NR, line 27. Include your self-employment earnings in earned income, even if they are less than $400 and you did not file Schedule SE.
taxmap/pubs/p503-001.htm#en_us_publink1000203357
Clergy or church employee.(p10)
If you are a member of the clergy or a church employee, see the Instructions for Form 2441 for details.
taxmap/pubs/p503-001.htm#en_us_publink1000203358
Statutory employee.(p10)
If you filed Schedule C (Form 1040) or C-EZ (Form 1040) to report income as a statutory employee, also include as earned income the amount from line 1 of that Schedule C (Form 1040) or C-EZ (Form 1040).
taxmap/pubs/p503-001.htm#en_us_publink1000203359
Net loss.(p10)
You must reduce your earned income by any net loss from self-employment.
taxmap/pubs/p503-001.htm#en_us_publink1000203360
Optional method if earnings are low or a net loss.(p10)
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 or Form 1040NR, line 27, from the total of the amounts on Schedule SE, Section B, lines 3 and 4b, to figure your net earnings.
taxmap/pubs/p503-001.htm#en_us_publink1000203361

You or your spouse is a student or not able to care for self.(p10)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203362
Spouse works.(p10)
If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month.
taxmap/pubs/p503-001.htm#en_us_publink1000203363
Spouse qualifies for part of month.(p11)
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.
taxmap/pubs/p503-001.htm#en_us_publink1000307959
You are a student or not able to care for self.(p11)
These rules also apply if you are a student or not able to care for yourself and are filing a joint return. 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). If you also work during that month, use the higher of $250 (or $500) or your actual earned income for that month.
taxmap/pubs/p503-001.htm#en_us_publink1000203364
Both spouses qualify.(p11)
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203365

Example.(p11)

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 $29,000 and the entire amount is Jim's earned income.
Jim and Sharon's earned income limit is the smallest of the following amounts.
 Jim and Sharon's Earned Income Limit 
1) Work-related expenses Jim paid$ 3,300 
2) Jim's earned income$ 29,000 
3) 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.
taxmap/pubs/p503-001.htm#en_us_publink1000203367

Dollar Limit(p11)

rule
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.
Tax Tip
If you paid work-related expenses for the care of two or more qualifying persons, the applicable dollar limit is $6,000. This 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.
taxmap/pubs/p503-001.htm#en_us_publink1000203369

Yearly limit.(p11)

rule
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.
taxmap/pubs/p503-001.htm#en_us_publink1000203370

Example 1.(p11)

You pay $500 a month for after-school care for your son. He turned 13 on May 1 and is no longer a qualifying person. You can use the $2,000 of expenses for his care January through April to figure your credit because it is not more than the $3,000 yearly limit.
taxmap/pubs/p503-001.htm#en_us_publink1000203371

Example 2.(p11)

In 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.
taxmap/pubs/p503-001.htm#en_us_publink1000203372

Reduced Dollar Limit(p11)

rule
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 Form 2441, Part III. See Dependent Care Benefits, earlier, for information on excluding or deducting these benefits.
taxmap/pubs/p503-001.htm#en_us_publink1000203373

Example 1.(p11)

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
taxmap/pubs/p503-001.htm#en_us_publink1000287364

Example 2. (p11)

Randall is married and both he and his wife are employed. Each has earned income in excess of $6,000. They have two children, Anne and Andy, ages 2 and 4, who attend a daycare facility licensed and regulated by the state. Randall's work-related expenses are $6,000 for the year.
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. Randall has elected to take the maximum $5,000 exclusion from his salary to cover dependent care expenses through this program.
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. This is because his dollar limit is reduced as shown next.
 Randall's Reduced Dollar Limit
1)Maximum allowable expenses for two
 qualifying persons
$6,000
2)Minus: Dependent care benefits selected
 from employer's cafeteria plan and
 excluded from Randall's income
−5,000
3)Reduced dollar limit on work-related expenses
 Randall can use for the credit
$1,000
taxmap/pubs/p503-001.htm#en_us_publink1000203375

Amount of Credit(p12)

rule
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; Form 1040A, line 22; or Form 1040NR, line 37. 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  $15,000 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% 
To qualify for the credit, you must have one or more qualifying persons. You should show the expenses for each person on Form 2441, line 2, column (c). However, it is possible a qualifying person could have no expenses and a second qualifying person could have expenses exceeding $3,000. You should list -0- for the one person and the actual amount for the second person. The $6,000 limit that applies to two or more qualifying persons would still be used to compute your credit unless you already excluded or deducted, in Part III of Form 2441, certain dependent care benefits paid to you (or on your behalf) by your employer.
taxmap/pubs/p503-001.htm#en_us_publink1000246903

Example.(p12)

Roger and Megan Paris have two qualifying children. They received $1,000 of dependent care benefits from Megan's employer during 2013, but they incurred a total of $19,500 of child and dependent care expenses. They complete Part III of Form 2441 to exclude the $1,000 from their taxable income (offsetting $1,000 of their expenses). Roger and Megan continue to line 27 to figure their credit using the remaining $18,500 of expenses.
Line 30 tells them to complete line 2 without including any dependent care benefits. They complete line 2 of Form 2441, listing both Susan and James, as shown in the Line 2 example above.
taxmap/pubs/p503-001.htm#en_us_publink1000291002

Line 2 Example

(a) Qualifying person's name (b) Qualifying person's social security number (c) Qualified expenses you incurred and paid in 2013 for the person listed in column (a)
FirstLast
SusanParis123-00-6789-0-
JamesParis987-00-432118,500.00
All of Susan's expenses were covered by the $1,000 of employer-provided dependent care benefits. However, their son James has special needs and they paid $18,500 for his care. Line 3 imposes a $5,000 limit for two or more children ($6,000 limit, minus $1,000 already excluded from income = $5,000) and Roger and Megan continue to complete the form.
Even though line 2 indicates one of the Paris children did not have any dependent care expenses, it does not change the fact that they had two qualifying children for the purposes of Form 2441.
taxmap/pubs/p503-001.htm#en_us_publink1000203378

Payments for prior year's expenses.(p12)

rule
If you had work-related expenses in 2012 that you paid in 2013, you may be able to increase the credit on your 2013 return. Attach a statement to your form showing how you figured the additional amount from 2012. Then enter "CPYE" (Credit for Prior Year Expenses) and the amount of the credit on the dotted line next to line 9 on Form 2441. 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. See Worksheet A.
taxmap/pubs/p503-001.htm#en_us_publink1000203379

Example.(p12)

In 2012, Sam and Kate had childcare expenses of $2,600 for their 12-year-old child. Of the $2,600, they paid $2,000 in 2012 and $600 in 2013. Their adjusted gross income for 2012 was $30,000. Sam's earned income of $14,000 was less than Kate's earned income. A credit for their 2012 expenses paid in 2013 is not allowed in 2012. It is allowed for the 2013 tax year, but they must use their adjusted gross income for 2012 to compute the amount. The filled-in Worksheet A they used to figure this credit is shown later.
Sam and Kate add the $162 from line 13 of this worksheet to their 2013 credit and enter the total on their Form 2441, line 9. They enter "CPYE $162" and their child's name and SSN in the space to the left of line 9.
taxmap/pubs/p503-001.htm#en_us_publink1000285307
Pencil

Worksheet A. Worksheet for 2012 Expenses Paid in 2013

Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013.

1. Enter your 2012 qualified expenses paid in 20121. 
2. Enter your 2012 qualified expenses paid in 20132. 
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 2012 and excluded from your income (from your 2012 Form 2441, line 25)5. 
6. Subtract the amount on line 5 from the amount on line 4 and enter the result6. 
7. Compare your earned income for 2012 and your spouse's earned income for 2012 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 2012 (from your 2012 Form 2441, line 6)9. 
10. Subtract the amount on line 9 from the amount on line 8 and enter the result. If zero or less, stop here. You cannot increase your 2013 credit by any previous year's expenses 10. 
11. Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37)11. 
12. Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here12. 
 
   IF your 2012 adjusted gross income is: THEN the decimal    
    Over: But not over:   amount is:    
    $   0$15,000   .35    
    15,00017,000  .34    
    17,00019,000  .33    
    19,00021,000  .32    
    21,00023,000  .31    
    23,00025,000  .30    
    25,00027,000  .29    
    27,00029,000  .28    
    29,00031,000  .27    
    31,00033,000  .26    
    33,00035,000  .25    
    35,00037,000  .24    
    37,00039,000  .23    
    39,00041,000  .22    
    41,00043,000  .21    
    43,000No limit  .20    
 
13. Multiply line 10 by line 12. Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. Enter the following on the dotted line next to line 9 of Form 2441:
  • "CPYE"
  • The amount of this credit for a prior year's expenses
   
  Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. 
 
taxmap/pubs/p503-001.htm#en_us_publink1000285712
Pencil

Worksheet A. Filled-in Worksheet for 2012 Expenses
Paid in 2013

Use this worksheet to figure the credit you may claim for 2012 expenses paid in 2013.

1. Enter your 2012 qualified expenses paid in 20121. $2,000
2. Enter your 2012 qualified expenses paid in 20132. 600
3. Add the amounts on lines 1 and 23. 2,600
4. Enter $3,000 if care was for one qualifying person ($6,000 if for two or more)4. 3,000
5. Enter any dependent care benefits received for 2012 and excluded from your income (from your 2012 Form 2441, line 25)5. 0
6. Subtract the amount on line 5 from the amount on line 4 and enter the result6. 3,000
7. Compare your earned income for 2012 and your spouse's earned income for 2012 and enter the smaller amount7. 14,000
8. Compare the amounts on lines 3, 6, and 7 and enter the smallest amount8. 2,600
9. Enter the amount on which you figured the credit for 2012 (from your 2012 Form 2441, line 6)9. 2,000
10. Subtract the amount on line 9 from the amount on line 8 and enter the result. If zero or less, stop here. You cannot increase your 2013 credit by any previous year's expenses 10. 600
11. Enter your 2012 adjusted gross income (from your 2012 Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37)11. 30,000
12. Find your 2012 adjusted gross income in the table below and enter the corresponding decimal amount here12. .27
 
   IF your 2012 adjusted gross income is: THEN the decimal    
    Over But not over   amount is:    
    $   0$15,000   .35    
    15,00017,000  .34    
    17,00019,000  .33    
    19,00021,000  .32    
    21,00023,000  .31    
    23,00025,000  .30    
    25,00027,000  .29    
    27,00029,000  .28    
    29,00031,000  .27    
    31,00033,000  .26    
    33,00035,000  .25    
    35,00037,000  .24    
    37,00039,000  .23    
    39,00041,000  .22    
    41,00043,000  .21    
    43,000No limit  .20    
 
13. Multiply line 10 by line 12. Add this amount to your 2013 credit and enter the total on your 2013 Form 2441, line 9. Enter the following on the dotted line next to line 9 of Form 2441:
  • "CPYE"
  • The amount of this credit for a prior year's expenses

   
  Also, attach a statement to your tax return showing the name and taxpayer identification number of the person for whom you paid the prior year's expenses and how you figured the credit 13. $162