Dependent care credit

Ordinarily you can claim a child care credit based on not more than $3000 for one child and $6000 for more than one child. An employer plan allows you to have up to $5000 pretax money used for child care even if only child.

The amount of credit is based on the lowest of your earned income, your spouse's earned income, and the 3000/6000 figure.

The credit is allowed only when each spouse is wroking, going to school to train for work, or when disabled.

So if your spouse worked only 4 months, then only 4/12 of the maximum allowed amount can be used.

Arthur Kamlet wrote: [snip]

The credit is based on paying qualified expenses in order for one to work or actively look for work. The Op said his wife was looking for employment. So.. if they paid for child care in order for her to work those two months and in order for her to actively look for work for x months.. say Sept thru Dec., then the qualified expenses are those that were paid for those 6 months.

Technically, the way they wrote the rules, the expenses are calculated on a daily basis. So.. if the wife actively looked for work 3 days a week and they paid for childcare for 5 days a week, then only 3 days of expenses would qualify.

Check the rules for your plan, or ask your HR department. Every plan I've ever seen has required that you make any changes within 30 days after the qualifying event (the change of status). That might be a requirement of the law, but I'm not sure.

Thank you both for the quick responses.

Do you think example #2 (see below) under Part-time work in Pub 503 pg. 6 would qualify as an exception? Meaning, if the care center only offered 5-day care, would we be entitled to the full expense, even if my wife was only looking for work 3 days out of the week? If the center offered single day care (based on availability), would I be forced to use that daily rate (x3) instead of the 5-day rate? Or the lesser amount of the two?

"Example 1. You work 3 days a week. While you work, your 6-year-old child attends a dependent care center, which complies with all state and local regulations. You can pay the center $150 for any 3 days a week or $250 for 5 days a week. Your child attends the center 5 days a week. Your work-related expenses are limited to $150 a week.

Example 2. The facts are the same as in Example 1 except the center does not offer a 3-day option. The entire $250 weekly fee may be a work-related expense."

Thanks, pimy

I spoke with my benefits coordinator today. She confirmed that our limit is 30 days. She wasn't sure if it was the law, or just de facto. She also stated that changing from MDO to part-time day care would have qualified as a change of status, but I missed the boat. I will not get another opportunity to contribute to the DC FSA until my open enrollment period next year. Will have to make contributions through wife's plan if she finds employment before then. Based on that, my original second question is moot. Any answer for my third question?

Thanks, pimy

Yes, assuming you meet all the requirements, you can get the Child/Dependent Care Credit for any expenses not provided through an employer plan. In other words, no double-dipping.

-Mark Bole

Example 2 is quite clear. If you have no option other than five day care in a week (i.e., the center does not offer care just for the 3 days worked), then the cost of five days is a qualified expense.

Where in publication 503 does it say this? All I could find was

Work for part of year. If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work related. However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (21/ months × $250).

So if the OP has expenses of $1000 a month, the wife works for 2 months and looks for a job for 2 months, the qualified expenses are $4000 (not $12000). However, this is already above the $3000 maximum for the year. I did not find anywhere in publication 503 that says the maximum amount of $3000 is reduced to $3000*(4/12)=$1000, or that the credit is reduced to $3000*0.20*(4/12)=$200.