This tax form for Form 1040A filers is really two forms in one. The first form is the child and dependent care credit. The second form concerns the tax exemption for dependent care benefits paid by your employer.
The calculations on the two forms are interrelated (which is why the IRS glued the two forms together). The following lines will briefly describe the dependent care benefit calculation, then its relationship to the child and dependent care credit.
If your employer didn't pay any dependent care benefits on your behalf, you can skip the next few paragraphs; they won't affect you.
The dependent care benefit rules allow up to $5,000 of dependent care benefits to be excluded from income and therefore exempted from taxation. (If not for this special provision, you would have to include the dependent care benefits in income.)
The bottom section of the form figures out how much of the dependent care benefits are exempt from taxation, and how much are taxable. The taxable amount carries to Form 1040A. The exempt amount affects the child and dependent care credit. How? By reducing, dollar for dollar, the expenses that can be counted as child care expenses.
So, for example, if you had $3,000 of qualifying child care expenses and $2,000 of tax exempt dependent care benefits, you will be allowed to enter only $1,000 ($3,000 minus $2,000) on line 03.
There is another surprising effect. The exempt amount also reduces the maximum amount you can claim. So, for example, if you had $10,000 of qualifying child care expenses and $4,800 of dependent care benefits, the maximum qualifying expenses you can claim will be zero ($4,800 minus $4,800); you will not be allowed to claim any child and dependent care credit, even though you had $5,200 of actual expenses in excess of the exempt amount from your dependent care benefits.
This information carries from the Child/Dependent Care Worksheet. If you entered information about more than two care providers, instead of carrying the information we print "See Worksheet" on the top line of the chart, and you should attach the Worksheet to your return.
This information carries from the Child/Dependent Care Worksheet. If you entered information about more than two qualifying persons, instead of carrying the information we print "See Worksheet" on the top line of the chart, and you should attach the worksheet to your return.
If you're using Part III of this Schedule (Dependent Care Benefits), the amount on line 03 is carried from line 27 . Otherwise, line 03 is calculated by adding together the amounts shown in column (c) of line 2.
Your earned income on line 04 includes wages from box 1 of your Form W-2's, income from the Non-W2 Wages Worksheet (other than scholarship and fellowship grants), and nontaxable earned income from the Child/Dependent Care Worksheet.
NOTE: Once the earned income figure is over $3,000 (if you have one qualifying child) or $6,000 (if you have more than one qualifying child), then the calculation is not affected by higher earned income amounts.
The "earned income" calculated here for line 04 is different from the "earned income" calculated for line 18 .
If your filing status is married filing jointly, your spouse's earned income on line 05 includes wages from box 1 of your spouse's Form W-2's, income from the Non-W2 Wages Worksheet (other than scholarship and fellowship grants), and nontaxable earned income from the Child/Dependent Care Worksheet.
If your filing status is not married filing jointly, and you're eligible to take the credit, we set line 05 equal to line 04.
NOTE: Once the earned income figure is over $3,000 (if you have one qualifying child) or $6,000 (if you have more than one qualifying child), then the calculation is not affected by higher earned income amounts.
The "earned income" calculated here for line 05 is different from the "earned income" calculated for line 19 .
The amount on line 12 is carried from box 10 on Forms W-2 that are marked as "self," and, if you are filing jointly, from box 10 on W-2's that are marked as "spouse." The amount carried from each Form W-2 is limited to $5,000.
This calculation of your earned income is different from the calculation on line 04, in that it doesn't include any amounts received as dependent care benefits from your employer.
This calculation of your spouse's earned income is different from the calculation on line 05, in that it doesn't include any amounts received as dependent care benefits from your spouse's employer. If you aren't filing a joint return and aren't married filing separately but treated as married, this line is set to the amount on line 18 .
The amount on line 22 is carried to Non-W2 Wages Worksheet, and from there to Form 1040A, line 7a.
On Form 1040A, line 7, the program enters "DCB" (Dependent Care Benefits).
This line is based on the number of qualifying persons you cared for in 2007. If the number of qualifying persons is 1, we automatically put $3,000 on line 23. If the number of qualifying persons is more than 1, we automatically put $6,000 on line 23. We set line 23 to zero if there are no qualifying persons.
If you received $5,000 of dependent care benefits, and they all were tax-free to you, then you won't be allowed to claim any child and dependent care credit. Your tax benefit from the exemption for dependent care benefits would completely offset your allowable expenses for the child and dependent care credit. This is the case no matter how large your actual qualifying child care expenses are.