Final 11-15-2008 NJ Training TY 2008 1

Non-Refundable Credits Child and Dependent Care Credit

Pub 17 Chapters 3 and 32Pubs 4012 Tabs D and 5

Module NJ 1.23

Final 11-15-2008 NJ Training TY 2008 2

Definitions

Credit – a dollar-for-dollar reduction of the tax liability

Nonrefundable Credit – can reduce the tax to zero, but does not provide a refund of excess credit

Refundable Credit – can reduce the tax to zero and provide a refund of excess credit

Final 11-15-2008 NJ Training TY 2008 3

Child/Dependent Care Credit Qualifying Tests Must incur dependent Care Expenses so

that TP and/or Spouse can work Qualifying Person(s) Special Rules for Divorced/Separated

Parents TP must have Earned Income Provider Identification

Final 11-15-2008 NJ Training TY 2008 4

Child/Dependent Care Work-related Expense Test To qualify for care, expenses must:

Allow TP (and spouse) to work or look for work Must be for a qualifying person’s care Are NOT for food, clothing, education and

entertainment Are NOT for attending Kindergarten or higher

grade

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Child & Dependent Care Qualifying Person(s) Your child who is TP dependent and under age13under age13 yrs yrs

when care is provided (can be any portion of year) Permanently disabled child any age Your disabled spouse who is unable to care for self Any other disabled person who lived with you more than

6 months and Is your dependent Any person who would have qualified as your dependent except

his/her income exceeded $3,500 Note: TP does not have to pay over half the cost of

keeping up a home for the qualifying person

Final 11-15-2008 NJ Training TY 2008 6

Child/Dependent Care Earned Income Test TP (and spouse) must have earned income

– wages, tips, and net self-employment

Spouse treated as having earned income if full-time student or disabled

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Child/Dependent Care Provider Identification Must have Provider Identification

Form W-10 “Dependent Care Provider ID and Certification”

Social security card If provider is Household Employee, need copy

of providers W-4 Payments to your dependents do not

qualify

Final 11-15-2008 NJ Training TY 2008 8

Child & Dependent Care Credit

If TP has Dependent Care Expenses, check the “DC” block opposite dependent’s name on Main Information Sheet

Use Tax Wise link to Form 2441 and enter data on page 1

If TP receives dependent care benefits from Employer, per Box 10 of W-2, must also complete page 2 of Form 2441

Final 11-15-2008 NJ Training TY 2008 9

W-2 Dependent Care BenefitHow does dependent care assistance from employers affect the taxpayer’s

limited eligible expenses?

The overall limit and qualified expenses are reduced, dollar for dollar, by any reimbursement (benefits) excluded from the taxpayer’s income.

Final 11-15-2008 NJ Training TY 2008 10

Child Dependent Credit Example

Under what circumstances can married taxpayers claim the child and dependent care credit, even though one spouse is not working?

If nonworking spouse is either full-time student during any 5 months of year or incapable of self-care for some period during the year.