# Presentation: 821307

## Lesson 7

**Credit for Child and Dependent Care Expenses**

**Notes:**
This lesson contains information for all courses and has been updated for tax year 2007.

  References:	
Form 2441, Child and Dependent Care Expenses
Form 13614, Intake and Interview Sheet
Publication 4012, Volunteer Resource Guide
Publication 17, Your Federal Income Tax for Individual

  Additional References:
Form W-2, Wage and Tax Statement
Schedule 2, Child and Dependent Care Expenses for Form 1040A Filers
Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents
Form W-10, Dependent Care Provider’s Identification and Certification
Publication 503, Child and Dependent Care Expenses

Progress to the next slide.

## Introduction and Objectives

- Determine who is eligible for the Credit for Child and Dependent Care Expenses
- Calculate the credit and the exclusion and report the expenses on the correct form

**Notes:**
Introduce the lesson.
Review the objectives with the class.
Note that all students must know how to apply both objectives.

Progress to the next slide.

## Form 2441 and Schedule 2

**Notes:**
Show students that Form 1040A, Schedule 2, and Form 2441 (used with Form 1040) are virtually identical.
Explain that this lesson will use only Form 2441.

## Intake and Interview Process

- Form 13614 - Intake and Interview Sheet Credits Section

**Notes:**
Use Form 13614, Intake and Interview Sheet, to engage the taxpayer in preparing an accurate return. 
Use the Intake and Interview Sheet as a starting point for a comprehensive interaction with the taxpayer, in combination with all the source documents provided by the taxpayer, to ensure quality and accuracy on each return.  
Confirm each item on Form 13614 (or similar tool used at your site) to make sure you and the taxpayer have considered all the necessary information. Ensure that all questions and issues have been addressed. If items are incorrect or incomplete, revisit each issue and make corrections to the return, as needed. 
Advise the students that they will need information from both the “Family and Dependent” and “Credit” sections of Form 13614 to complete this section. 

Progress to the next slide.

## Five Qualifying Tests

- Qualifying Person
- Earned Income
- Work-Related Expense
- Joint Return
- Provider Identification

**Notes:**
Explain to the students that in order to qualify for this credit, the taxpayer must satisfy all five tests of eligibility.
Refer students to the Publication 4012, Volunteer Resource Guide, Tab G, and introduce them to the child and dependent care credit requirements and decision tree.

Progress to the next slide.

## Five Qualifying Tests – cont’d

**Qualifying Person Test**
- Qualifying Child
- Disabled Dependent
- Disabled Spouse

**Notes:**
Read and discuss the “Qualifying Person Test“ section.
Ask for a volunteer to read Example 1, then discuss.
Ask students why Janet and Jill are qualifying persons.
Answer: Janet is physically disabled and Jill is under 13.
Ask for a volunteer to read Example 2, then discuss.
Advise the student of the potential pitfall at the top of page 7-3.
Advise students to complete Exercise 1, then discuss.
Read and discuss “Children of Divorced or Separated Parents.”
Advise students of the Alert regarding never married parents.
Ask for a volunteer to read Example 3, then discuss.
Advise students to complete Exercise 2, then discuss.
Optional guided questions:
To qualify for the credit, under what age must a child have been when the care was provided, assuming the child is not permanently or totally disabled? (The age is 13.)
Does the child have to be 13 at the end of the year to qualify for the credit? (No, the credit allows qualifying expenses to be claimed up to the day the child turns 13.)
If a non-custodial parent has a signed Form 8332, Release of Claim to Exemption for Child of Divorced or Separated Parents, can he or she claim the credit for child and dependent care expenses? (No. Only a custodial parent can claim this credit for his or her qualifying children.)
Refer to the decision tree in Publication 4012 to assist with determining who qualifies for this credit.

Progress to the next slide.

## Five Qualifying Tests – cont’d

**Earned Income Test**
- Must have earned income during the           year
- If married, both spouses needed to work unless one was:
- A full-time student (for at least 5 months), or
- Incapable of self-care.

**Notes:**
 Read the “Earned Income Test” section and discuss.

Progress to the next slide.	

## Five Qualifying Tests – cont’d

**Earned Income Test ****(Continued)**
- If a spouse was a full-time student or was incapable of caring for himself or herself, income is considered to be at least:
- $250 for one qualifying person, or
- $500 for two or more qualifying persons.

**Notes:**
Ask for a volunteer to read Example 4.
Discuss the exceptions if a spouse is a full-time student or is unable to care for himself or herself.
Discuss the exception if both taxpayers are either full time students or unable to care for themselves.

Progress to the next slide.

## Five Qualifying Tests – cont’d

**Work-Related Expense Test**
- Allows the taxpayer to work or look for work
- Provides for qualified person(s) care
**Joint Return Test**
**Provider Identification Test**
- Due Diligence
- Provider Refusal

**Notes:**
Read the “Work-Related Expense Test” section and discuss.
Review the Alert box at the top of page 7-5, Publication 678, and discuss.
Ask for a volunteer to read Example 5 and discuss.
Ask for a volunteer to read Example 6 and discuss.
Read the information about “Camp” and “Payments to Relatives.”
Read the “Joint Return Test” section and discuss. 
Read the “Provider Identification Test” section and discuss.
Read the Alert box on page 7-6 of the student guide.
Optional guided question: 
	If the care provider refuses to give the taxpayer the identifying information, what do you do? (Report whatever information is available, enter “see page 2” for the missing information, and provide a statement at the bottom of page 2 of Form 2441.) 
Refer to Publication 17 for additional information on due diligence and provider refusal. 
	Note: The taxpayers will not be able to e-file their returns if the provider information is not shown on their returns.

Progress to the next slide.

## Limit on Expenses

- Amount of eligible expenses limited to the lowest of:
- Lower paid spouse’s earned income (if married)
- Single taxpayer’s earned income
- Actual expenses paid
- Overall limits of
-  $3,000 for one qualifying person
-     $6,000 for two or more persons

**Notes:**
Read the “Limit on Expenses” section and discuss.
Point out that Form 2441 requires the preparer use the lower amount.
Ask for a volunteer to read Example 7 and discuss.
Ask for a volunteer to read Example 8 and discuss.
Have the students use the Volunteer Resource Guide, Tab G, Credit for Child and Dependent Care Decision Tree, to assist them with Exercise 3. (The answers to Exercise 3 are listed on page 7-15 of Publication 678.)

Progress to the next slide.

## Figuring the Credit

- Use Form 1040A, Schedule 2
- Use Form 2441 for Form 1040
- Complete Part III of the form if the taxpayers received benefits under a dependent care benefits program

**Notes:**
Read the “Figuring the Credit” section and discuss.
Read the potential pitfall on page 7-8 of the student guide and discuss.
Remind students that if Form W-2 has dependent care benefits in box 10, they must first complete Part I. Next, they will complete Part III on the back to account for the dependent care benefits received from the taxpayer’s employer. Then, they may complete Part II.   
	Note: If there are no dependent care benefits paid by the employer, they may complete the front of Form 2441 only (Parts I and II).
Ask for a volunteer to read Example 9 and discuss.
Exhibit 1: Students may question why Exhibit 1 shows $2,000 and not $3,000 as the amount of qualified expenses entered on line 3 of Form 2441, Part II. Point out that the Fullertons received $1,000 under a dependent care benefits program, and that for taxpayers like the Fullertons, Part III of Form 2441 must be filled out before Part II. 
Complete Exercise 4 and discuss the answer. (The answers are on pages 7-16 and 7-17 of Publication 678.)
Advise students to check and recheck that the name and SSN entered agree with the person’s social security card. If the return and SSN do not agree at the time the return is processed, the credit may be reduced or disallowed. If the qualifying child was born and died in 2007, and did not have a SSN, enter “Died” in column (b) and attach a copy of the person’s birth certificate. If the name or SSN on the person’s social security card is not correct, the taxpayer will need to contact the Social Security Administration at 1-800-772-1213.
Review TaxWise Hints.
Progress to the next slide.

## Quality Review (QR)

- Form 8158 – Quality Review Sheet
- Adjustments, Deductions, and Credits Section

**Notes:**
Use Form 8158, Quality Review Sheet, or an approved alternative form, to review all returns prepared.  
Apply the Quality Review tools, in combination with the Intake and Interview Sheet and all the source documents, to the returns you prepare to ensure quality and accuracy for each taxpayer.  
Consider each box on the Quality Review Sheet which applies to the taxpayer’s situation to ensure that all questions and issues have been addressed. If items are incorrect or incomplete, revisit each issue and make corrections to the return, as needed.
To accurately report adjustments, deductions, and credits, verify that the information on the Intake and Interview Sheet and on the taxpayer’s supporting documents is included on the return.
Confirm that all potential adjustments, deductions, and credits have been discussed with the taxpayer and shown on the return if applicable.

Progress to the next slide.

## Lesson Summary

- Nonrefundable credit
- Five qualifying tests
- Volunteer Resource Guide* *

**Notes:**
Read the “Summing Up This Lesson” box.
Optional Guided Questions: 
Ask students to name the Five Qualifying Tests. (Qualifying Person Test, Earned Income Test, Work-Related Expense Test, Joint Return Test, and Provider Identification Test.) 
True or False. The child and dependent care credit is a refundable credit. (False. The credit is nonrefundable.)
Can taxpayers claim qualifying child and dependent expenses for their dependent child who turned 13 in October 2007? (Yes, they can claim the expenses up to the day of the child’s 13th birthday.)

Remind students to always use Publication 4012, Volunteer Resource Guide, when determining eligibility for the credit.

Progress to the next lesson.