Many Americans hire someone to care for a child or other dependent so they or their spouse can work. If you couldn’t provide care for a child, spouse or household member without quitting your job, you may qualify for a tax credit to help you defray the costs associated with that care. If you qualify, all you have to do is file IRS Form 2441, a straightforward two-page tax form that allows you to reduce your taxable income. Keep reading to learn more.
What is IRS Form 2441?
Form 2441 is the Child and Dependent Care Expenses form and can be filed with either Form 1040 or Form 1040NR.
Do I Qualify?
There are several eligibility requirements you must meet before you can receive a credit for child or dependent care. Before you spend your time filling out the form, it’s important to become familiar with the rules. To qualify for this credit, you must incur care provider expenses for the benefit of:
- A child under the age of 13
- Your disabled spouse
- A dependent of any age who is not mentally or physically capable of caring for him or herself
If your filing status is Married Filing Separately, you must check to see if you meet extra requirements before you can claim a credit for child and dependent care expenses.
How to Fill Out the Form
Luckily, Form 2441 is fairly straightforward to fill out. Before you get to Part I, you need to fill out your name as it is shown on Form 1040 or Form 1040NR and your Social Security Number.
IRS Form 2441 is designed to provide proof to the IRS that you are eligible for the Child and Dependent Care Tax Credit, disclose the eligible costs you incurred for dependent care and declare your income.
In Part I of this tax form, you need to list the names of everyone who you paid to provide care to your dependent. You will need the address, Social Security Number or Employer Identification Number and how much you paid. If the care was provided in your home, review the instructions for Form 1040 line 60a or Form 1040NR line 59a. You may owe employment taxes.
If you’ve filled out Part I and received dependent care benefits, skip to Part III before you try to complete Part II. Otherwise, move on to Part II directly.
On Line 4 of Part II, you are required to enter your earned income. The hardest part about filling out Form 2441 is understanding the difference between earned and unearned income. According to the IRS, “earned income” is defined as money you receive from employment or self-employment activities. However, there are exceptions to this rule. These include:
- Taxable disability benefits if you are unable to work
- Non-taxable combat pay due to military service
You cannot use unearned income to qualify for this credit. Examples of unearned income include:
- Social Security retirement benefits
- Unemployment compensation
- Capital gains
If your only source of income for the year comes from “unearned income,” you are not eligible for the child and dependent care credit. Luckily, it’s rare for someone to have no earned income for the year, so you probably qualify for this credit.
Part II is the part of IRS Form 2441 that determines how much of the tax credit you are eligible for. First, you’ll need to write the names, Social Security Numbers and qualified expenses for the qualifying dependent or dependents. If there were more than two dependents, you will need to follow special instructions.
Enter the total amount of qualifying expenses you’ve incurred on line 3. If you went straight to Part III, enter the amount from Line 31. If you had one qualifying person, you can enter a maximum of $3,000. If you had two or more qualifying persons, you can enter a maximum of $6,000. If you had two or more qualifying dependents, you can reach the $6,000 maximum even if one individual’s care does not reach $3,000. In other words, if you pay $1,800 for one dependent and $4,200 for another dependent, you can still claim the entire $6,000 credit.
Line 4 is where it’s important to understand the difference between earned and unearned income. Line 4 is where you enter your earned income. If married filing jointly, enter your spouse’s earned income. Special instructions apply if you or your spouse was a student or disabled. On Line 6, write the smallest of Lines 3, 4 or 5. On Line 7, write the amount from Line 36 on Form 1040NR or Line 7 from Form 1040.
Line 8 is where you use the chart to find the decimal amount corresponding to the amount filled in on Line 7. To fill in Line 9, you’ll need to multiply the decimal from Line 8 by the amount on Line 6. This reduces your tax credit by a percentage depending on your income. The lower your income, the greater percentage of credit you get to keep. Line 10 is where you will enter your tax liability limit from the worksheet attached to the form.
Line 11 is simply the smaller of Line 9 or Line 10. Line 11 is the credit itself and should be filled in on Line 47 of Form 1040NR or Line 40 of Form 1040.
If you received dependent care benefits, you will be at Part III of Form 2441. If you’re unsure what dependent care benefits are, you’re not alone. Dependent care benefits are given to employees by their employer to cover the cost of child or other dependent care expenses. These benefits can come in the form of a stipend, money put into your FSA that cover these care expenses or the fair market value of daycare provided by your employer.
Schedule an Appointment with a Tax Specialist Today
For more information on IRS Form 2441, how to claim it or any other state or federal tax concerns you have, reach out to one of our tax specialists today. Our mission is to help you with all your IRS and state tax burdens, whether it’s settlement, resolution or advice on how to reduce your tax liability. Call us today at (800) 790-1507 for a free consultation, or fill out our contact request form.