rom 2441

Department of the Treasury
Internal Revenue Service

b> Attach to Form 1040.

Credit for Child and Dependent Care Expenses 1977

Name(s) as shown on Form 1040

Your social sect number

1 Name and relationship of each qualifying individual for whom expenses were paid and period (months and days) each lived in your

household as a qualifying individual during this taxable year (see instructions for line 1).
(b) Relationship

(a) Name

(©) Period lived in your household

Months: Days

2 List the individual(s) or organization(s) to whom employment-related expenses were incurred during this taxable year.

(a) Name and address
(if more space is needed,
attach schedule)

(b) Social security
number (see instructions

(c) Relationship
for line 2)

(d) Period incurred in 1977

From
Month—Day

(e) Amount
To
Month—Day

Computation of Credit

3 Total of column (e) .

4 Enter the lesser of amount on line 3 or $2, 000 4, 000 it two or more © qualifying individuals) (see

instructions for line 4)

5 Earned income limitation (an entry MUST be made on this line):
(a) If unmarried at end of 1977, enter amount of earned income .

(b) If married at end of 1977, enter the lesser of your earned income or your spouse’s earned
income. Note: If you or your spouse was a student or incapable of self-care, see instruc-

tions for line 5 .
6 Enter the lesser of line Ac or fine 5.

ON

Total amounts listed on line 6 paid during 1977.
Child and dependent care expenses incurred in 1976 not paid until 1977 (Attach schedule fe showing

computation of limitations—see instructions for line 8) .

9 Total of lines7and8.... .

10 Credit for child and dependent care expenses. Multi the amount on line 9 ty 20%. Enter result

here and on Form 1040, line 40 -

>

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1

ary

If payments listed on line 2 were made to an individual, complete the following:
(a) If payment of $50 or more in a calendar quarter was made to an individual, were the services performed in your home? .
(b) If “Yes,” have appropriate wage tax returns on wages for services in your home been filed (see instructions for line 11)? .

(c) If answer to (b) is “Yes,” enter your employer identification number .

Yes | No

aul

Instructions

Who May Claim the Credit.—lf you
maintain a household that includes as a
member one or more qualifying individuals,
you may be allowed a credit against your
income tax. The credit is limited to 20 per-
cent of employment-related expenses (up
to certain limitations) paid during the tax-
able year in order to enable you to work
either full or part time for an employer or
as a self-employed individual.

You will be treated as maintaining a
household for any period only if you fur-
nish over half the cost of maintaining the
household for that period. If you are
married during such period, you and your
spouse must provide over half the main-
tenance cost for that period.

The expenses of maintaining a house-
hold include property taxes, mortgage in-
terest, rent, utility charges, upkeep and
repairs, property insurance, and food con-
sumed on the premises. They do not in-

clude the cost of clothing, education,
medical treatment, vacations, life insur-
ance, and transportation.

Employment-related _Expenses.—"Em-
ployment-related expenses” are those paid
for the following, but only if paid to enable
you to be gainfully employed:

(1) Expenses for Household Services.—
Expenses will be considered for household
services in your home if they are for the
ordinary and usual services necessary for
the operation of the home, and bear some
relationship to the qualifying individual.
Thus, payment for services of a domestic
maid or cook will ordinarily be considered
expenses for household services if per-
formed at least partially for the benefit of
the qualifying individual.

(2) Expenses for the Care of a Qualify-
ing Individual.—Expenses will be consid-
ered for the care of one or more qualifying
individuals if their main purpose was to
assure that individual's well-being and

protection. Payments for food, clothing, or
education are not such expenses. How-
ever, if the care provided includes ex-
penses that cannot be separated, the full
amount paid will be considered for the
qualifying individual’s care. Thus, the full
amount paid to a nursery school will be
considered for the care of a child even
though the school also furnishes lunch.
Educational expenses for a child in the
first or higher-grade level are not expenses
for the child's care.

Do not include services outside your
household as employment-related © ex-
penses for your spouse or a dependent age
15 or older. However, services outside your
household are employment-related ex-
penses for a dependent who has not
reached his or her 15th birthday.

Special Rules.—
(1) Married Couples Must File Joint Re-
turns.—If you are married at the end of

(Continued on back)
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the taxable year, the credit for employ-
ment-related expenses is allowable only if
you and your spouse file a joint return for
the taxable year.

(2) Marital Status.—If you are legally
separated from your spouse under a de-
cree of divorce or of separate maintenance,
you are not considered as married.

(3) Certain Married Individuals Living
Apart and Filing Separate Returns.—lf
during the last 6 months of the taxable
year your spouse was not a member of
your household and you (i) maintained a
household that was for more than one-
half of the taxable year the principal place
of abode of a qualifying individual, and (ii)
furnished over half of the cost of main-
taining such household during the taxable
year, then you are not considered married
for purposes of the credit.

(4) Special Dependency Test in Case of
Divorced Parents.—A child (son, stepson,
daughter, stepdaughter) whose parents
are divorced, legally separated under a de-
cree of divorce or separate maintenance,
or separated under a written separation
agreement, shall be treated as a qualifying
individual for the parent having custody of
the child for the longer period during the
taxable year, provided that all of the fol-
lowing three conditions are met:

(a) The child must be under the age of
15 or physically or mentally incapable of
self-care.

(b) The child must receive over half of
his or her support during the taxable year
from the parents.

(c) The child must be in the custody of
one or both of the parents for more than
one-half of the taxable year.

(5) Payments to a Related Individual.—
In computing your credit, you may not
include payments made to a relative of
yours or of your spouse or to a dependent
household member. For this exclusion, a
relative of yours or of your spouse in-
cludes: son or daughter and their descend-
ants; stepson or stepdaughter; brother,
sister, stepbrother, stepsister; father or
mother and their ancestors; stepfather,
stepmother; nephew, niece, uncle, aunt;
son-in-law, daughter-in-law, father-in-law,
mother-in-law, brother-in-law, sister-in-law.

Exception: Payments made to a relative listed
above may also be included in computing your
credit if that relative is not your dependent and
the relative’s services are considered employment
for social security purposes.

For social security purposes, the following serv-
ices are considered employment:

(a) Services performed by your son or daughter

age 21 or over, but not your spouse.

(b) Domestic service by your mother or father
if () you have in your home a son or
daughter who is under age 18 or who has
a physical or mental condition requiring the
personal care of an adult for at least four
continuous weeks in the quarter, and (ii)
you are a widow (widower) or are divorced,
or you have a spouse in your home who,
because of a physical or mental condition,
is incapable of caring for your son of
daughter for at least four continuous weeks
in the quarter.

(c) Services of all other relatives who are not
self-employed.

Employment-related Expense vs. Medi-
cal Expense Deduction.—If an expense
qualifies as both employment-related and
medical, you may treat it either way, as
long as you do not use it twice. If you treat
the expense as employment-related, any
part of it that you cannot use because of
the maximum $2,000 ($4,000) yearly limi-
tation can be treated as part of your medi-
cal expenses.

If you treat the expense as medical,
the part of it that is not deductible because
of the 3 percent medical deduction limita-

tion cannot be used as part of your em-
ployment-related expenses.

Use of Credit in Determining Your
Withholding Allowances.—The credit for
child and dependent care expenses may be
used in determining your withholding allow-
ances. By claiming your proper number of
withholding allowances, you can fit the
amount of tax withheld from your wages to
your tax liability. For further information,
obtain a Form W-4, Employee's Withhold-
ing Allowance Certificate from your em-

ployer or an Internal Revenue Service
office.
Figuring the Credit

Line 1.—Enter in the appropriate

column the name(s), and relationship of
each qualifying individual for whom ex-
penses were paid and period (months and
days) each lived in your household as a
qualifying individual during your taxable
year. Determine on a daily basis whether
an individual a qualifying individual. A
qualifying individual is:

(a) A dependent under age 15 whom
you can claim as an exemption or a child
meeting the special dependency test of
divorced parents (see Special Rule (4)).

(b) A person who is physically or men-
tally incapable of self-care who you eith

(1) are entitled to claim as an exemp:

tion; or

(2) would be entitled to claim as an ex-

emption except that the person had
gross income of $750 or more.

(c) Your spouse, if physically or men-
tally incapable of self-care.

Line 2.—Enter in: column (a) the name
and address of the individual(s) or organi-
zation(s) to whom employment-related ex-
penses were incurred, column (b) the em-
ployee’s social security number, column
(c) the relationship of the individual to you
(if none, write none), column (d) the period
for which the expense was incurred in
1977, and column (e) the amount of ex-
pense incurred (include your share of so-
cial security taxes on employee's wages).

Enter in column (b) only the social secu-
rity number of an individual who is your
employee. No entry should be made for
a self-employed individual, partnership, or
corporation.

“Incurred means owed for payment,
whether or not paid. However, to be al-
lowed in computing the credit, expenses
must be paid during the taxable year the
credit is claimed and must be within the
limitations.

If the employment-related household
expenses benefited a qualifying individual,
do not allocate any part of the expenses to
nonqualifying individuals.

Line 4.—Enter lesser of line 3 or $2,000
if you listed the name of one qualifying in-
dividual or $4,000 if you listed th mes
of two or more qualifying individuals.
These amounts are the dollar limits for
employment-related expenses incurred dur-
ing any taxable year that may be taken into
account in computing the credit.

Line 5.—Enter the amount of your
earned income if you are unmarried. If
you are married, enter the earnings of the
‘spouse having the lesser amount of earned
income. If your spouse is a full-time stu-
dent at an educational organization or in-
capable of self-care, use the greater of your
spouse’s monthly earned income or $166
($333 if two or more qualifying individuals)
to determine his or her total yearly income.
Use this amount to decide which spouse
has the lesser amount of earned income
to be entered on line 5. The $166 ($333)
rule applies to only one spouse for any one
month. Therefore, if both you and your
spouse are students or incapable of self-

e U.S, GOVERNMENT PRINTING OFFICE : 1977—-0-235-146

care the same month, no amounts paid
that month are considered employment-
related expenses for purposes of the credit
because neither of you was employed on a
full-time or part-time basis.

“Earned income” means wages, sala-
ries, professional fees, etc., received for
personal services rendered and net earn-
ings from self-employment. It does not
include compensation for your services
that was a distribution of earnings and
profits other than a reasonable allowance
for your work for a corporation, nor does it
include pensions, annuities, or amounts
that are received under accident and health

plans that are excludable from gross
income.
“Student” is one who was enrolled

as a full-time student at an educational
organization during any of 5 months during
the taxable year.

“Educational organization” means a
school that has a regular teaching staff,
course of study, and body of students in
attendance. It includes elementary schools,
junior and senior high schools, colleges,
universities, technical and mechanical
schools. It also includes a night school in
which the student is enrolled for the num-
ber of hours or classes that is considered
full-time attendance at a similar day
school. It does not include on-the-job
training courses, correspondence schools,
etc.

Lines 6 and 7.—Complete these lines
as instructed on the form.

Line 8.—Child and dependent care ex-
penses incurred in 1976 may be eligible for
the credit in 1977. If you paid for expenses
in 1977 that you incurred in 1976, a credit
may be computed on the expenses in 1977
if you did not exceed the limitations in
1976. The credit is in addition to the child
and dependent care credit you may claim
on expenses incurred and paid in 1977.

Example: In 1976, you incurred child care ex-
penses of $2,100 for your 14-year old daughter.
Of the $2,100 in child care expenses, $1,800
were paid in 1976 and $300 were paid in 1977.
Your spouse's earned income of $5,000 was less
than your earned income. You would be allowed
to compute a credit on $200 in 1977, computed
as follows:

1 Child care expenses incurred in 1976. . $2,100

2 Qualifying individual limitation .

3 Income limitation .

4 Lesser of line 1, 2, or 3. eee

5 Less expenses on which credit was com-
puted in 1976... . 2... ee

6 Expenses allowable for credit in 1977 .

Line 11.—On line 11(a), check yes or no
box if you paid cash wages for a household
employee who performed services of a
household nature in your home. In general,
if you paid cash wages of $50 or more ina
calendar quarter for household services to
a person such as a cook, housekeeper, gov-
erness, maid, cleaning person, babysitter,
etc., you are required to file an employment
tax return. If you are not sure whether you
should file an employment tax return, ask
the Internal Revenue Service or obtain
Form 942, Employer’s Quarterly Tax Re-
turn for Household Employees.

On line 11(b), check yes or no box de-
pending on whether or not you have filed
Form 942, Employer’s Quarterly Tax Re-
turn for Household Employees, for serv-
ices performed in your home.

‘On line 11(c), enter your employer iden-
tification number. If you do not have a
number, and are liable, file Form 942, and
enter “‘none” in the space for “Employer
identification no.”

For more information, obtain Publica-
tion 503, Child Care and Disabled De-
pendent Care.

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