Top Frequently Asked Questions for Childcare Credit, Other Credits

May a noncustodial parent claim the child tax credit for his or her child?

Answer:

Yes, a noncustodial parent may be eligible to claim the child tax credit for his or her child as long as he or she is allowed to claim the child as a dependent and otherwise qualifies to claim the child tax credit.

A noncustodial parent must attach to his or her return a Form 8332, Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent, or a substantially similar statement, signed by the custodial parent to claim the child as a dependent.

Subcategory:

May I claim the child tax credit/additional child tax credit or the credit for other dependents as well as the child and dependent care credit?

Answer:

Yes, you may claim the child tax credit (CTC)/additional child tax credit (ACTC) or credit for other dependents (ODC) as well as the child and dependent care credit on your return if you qualify for those credits.

Subcategory:

My spouse and I both work and are eligible for the child and dependent care credit. May I include my 5-year-old son's private kindergarten tuition as a qualified expense on Form 2441, Child and Dependent Care Expenses?

Answer:

No, tuition for kindergarten isn't a qualifying expense for the child and dependent care credit because expenses to attend kindergarten or a higher grade are educational expenses rather than childcare expenses.

However, the expenses for a before- or after-school care program of a child in kindergarten or a higher grade may qualify, even though the expense of school tuition doesn't qualify.
 

I'm thinking of paying a family member to babysit for my two-year old child while I work. May I claim this cost as a childcare expense even though my family member isn't a registered daycare provider? Who's responsible for paying employment taxes on the money I pay for this care?

Answer:

These payments may be qualified childcare expenses if the family member babysitting isn't your spouse, the parent of the child, your dependent, or your child under age 19, and if you otherwise qualify to claim the child and dependent care credit.

Who's responsible for paying employment taxes on these payments depends on whether your family member is your employee or is self-employed (an independent contractor).

  • See Publication 15-A, Employer's Supplemental Tax Guide for a general discussion of how to determine whether an individual who is performing services for you is an employee or an independent contractor.
  • Special rules apply to family employees generally, and to family employees who perform household work (including babysitting) in your home. For more information on these rules, see Publication 15 (Circular E), Employer's Tax Guide and Publication 926, Household Employer's Tax Guide.
  • If your family member is your employee and no exceptions apply, then you're generally responsible for withholding the employee's share of employment taxes and paying the employer's share of employment taxes.
  • If your family member isn't your employee, then the family member will be responsible for paying any applicable self-employment taxes on the income earned.

Do tuition and related expenses paid to attend a private high school qualify for an education credit?

Answer:

No, expenses paid to attend a private high school don't qualify for an education credit because a high school isn't an eligible educational institution.

In general, an eligible educational institution is an accredited college, university, vocational school, or other postsecondary educational institution. To be eligible, the educational institution must also be eligible to participate in a federal financial student aid program administered by the Department of Education.

 

Subcategory:

I heard there's a credit for hiring certain groups of workers, such as veterans or ex-felons. Is that the same thing as the work opportunity tax credit?

Answer:

Yes. The work opportunity tax credit (WOTC) provides an incentive to hire and pay wages to individuals from targeted groups that have particularly high unemployment rates or who have faced significant barriers to employment.

The Consolidated Appropriations Act, 2021 (Section 113 of Division EE P.L. 116-260) extended the ability to claim the WOTC for wages paid by an employer to members of targeted groups who begin work for the employer after 2020 and before 2026. Generally, the WOTC is equal to 40 percent of the qualified wages paid to a targeted group employee who performs at least 400 hours of service during his or her first year of employment with the employer.

You must pre-screen and obtain certification from your state workforce agency (SWA) that an individual is a targeted group member before you claim the credit. To satisfy the requirement to pre-screen, on or before the day a job offer is made, Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit must be completed by you and the job applicant. Generally, you obtain certification by submitting Form 8850 to the SWA. You must submit the form not later than the 28th day after the individual begins work for you. 

Newly hired individuals from the following targeted groups might qualify you for this tax credit:

  • A qualified IV-A recipient, relating to Temporary Assistance for Needy Families (TANF).
  • A qualified veteran.
  • A qualified ex-felon.
  • A designated community resident.
  • A vocational rehabilitation referral.
  • A qualified summer youth employee.
  • A qualified supplemental nutrition assistance program (SNAP) benefits (food stamps) recipient.
  • A qualified SSI recipient.
  • A long-term family assistance recipient.
  • A qualified long-term unemployment recipient.

If you’re a partnership, S corporation, cooperative, estate, or trust, you calculate the credit by completing Form 5884, Work Opportunity Credit, and filing with your tax return or on Form 3800, General Business Credit, as appropriate. If your only source for the credit is a partnership, S corporation, cooperative, estate, or trust, you aren’t required to complete or file Form 5884, instead report the credit directly on Form 3800. If you're a qualified tax-exempt organization, calculate and claim the credit by completing and filing Form 5884-C, Work Opportunity Credit for Qualified Tax-Exempt Organizations Hiring Qualified Veterans, after you file your employment tax return for the employment tax period for which you are claiming the credit. See the Instructions for Form 5884 and the Instructions for Form 5884-C.

Subcategory:

My babysitter refused to provide me with her Social Security number. May I still claim the amount I paid her for childcare while I worked? If so, how do I claim these childcare expenses on my tax return?

Answer:

Yes, you may still claim the child and dependent care credit when you're missing the provider's Social Security number or other taxpayer identification number by demonstrating due diligence in attempting to secure this information.

Claim the childcare expenses on Form 2441, Child and Dependent Care Expenses and provide the care provider's information you have available (such as name and address). Write "See Attached Statement" in the columns corresponding to the missing information. Explain on the attached statement that you requested the provider's identifying number, but the provider didn't give it to you. This statement supports the exercise of due diligence in trying to secure the identifying information for the claim.

What expenses qualify for an education credit?

Answer:

Expenses that qualify for an education credit (whether the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit) are qualified tuition and related expenses paid during the taxable year. Qualified tuition and related expenses are tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or any dependent of the taxpayer at an eligible educational institution for courses of instruction. For the AOTC, the expenses must be paid in a program to acquire a postsecondary degree and may include required course materials. For the Lifetime Learning Credit, the expenses must be paid in a program to acquire a postsecondary degree or to acquire or improve job skills.   

For the AOTC provisions, student activity fees are included in qualified education expenses only if the fees must be paid to the institution as a condition of enrollment or attendance. Expenses for books, supplies, and equipment that are required course materials are included in qualified education expenses whether or not the materials are purchased from the educational institution.

For the Lifetime Learning Credit, student activity fees and expenses for course-related books, supplies and equipment are included in qualified education expenses only if the fees and expenses must be paid to the institution for enrollment or attendance by an individual.

Qualified tuition and related expenses don't include the following types of expenses:

  • Expenses related to any course of instruction or education involving sports, games or hobbies, or any noncredit course (unless the course or other education is part of the student's degree program or, in the case of the Lifetime Learning Credit, the student takes the course to acquire or improve job skills),
  • Student activity fees (unless required for enrollment or attendance),
  • Athletic fees (unless required for enrollment or attendance),
  • Costs of room and board,
  • Insurance premiums or medical expenses (including student health fees),
  • Transportation expenses, and
  • Other personal, living, or family expenses.

An eligible educational institution means a college, university, vocational school, or other postsecondary educational institution that's accredited and eligible to participate in the federal financial student aid programs administered by the Department of Education.
 

Subcategory:

Why does my Form W-2 report a benefit of $5,000 in box 10 when my employer set aside $5,000 in wages for dependent care expenses under a dependent care assistance program?

Answer:

When you are eligible to participate in a dependent care assistance program through your employer and you choose to participate, your employer has to report that value in box 10 of your Form W-2. This type of plan is a voluntary agreement to reduce your salary in return for an employer-provided fringe benefit. Your employer will also include in your wages shown in box 1 of your Form W-2 any dependent care benefits that exceed the maximum amount of dependent care benefits allowed to be excluded. The maximum amount is $5,000 ($2,500 if married filing separately).

You're receiving a tax benefit because under the plan, you're not paying taxes on the money set aside to pay for the dependent care expenses.

You must complete and attach Form 2441, Child and Dependent Care Expenses to your tax return.

Who can claim the American opportunity tax credit?

Answer:

You can claim the American opportunity tax credit (AOTC), if:

  • You pay some or all qualified tuition and related expenses for any of the first 4 years of postsecondary education at an eligible educational institution.
  • You paid qualified expenses for an eligible student (defined below).
  • The eligible student is you, your spouse, or a dependent you claim on your tax return.
  • You show the name and taxpayer identification number (TIN) of you, your spouse, and the eligible student on the return.
  • Your modified adjusted gross income is below a certain dollar limitation.
  • You aren't listed as a dependent on another person's tax return (such as your parents').
  • In the case of a married taxpayer, your filing status is married filing jointly.
  • You don't claim the lifetime learning credit for the same student in the same year.
  • In the case of a taxpayer who is a nonresident alien (or whose spouse is a nonresident alien) for any part of the tax year, the nonresident alien elects to be treated as a resident alien for tax purposes. For additional information, refer to Publication 519, U.S. Tax Guide for Aliens.
  • You provide the EIN of the eligible educational institution regardless of whether or not you receive a Form 1098-T.

The maximum amount of the credit is $2,500, and 40% of the credit is generally refundable (up to $1,000).

An eligible student is a student who:

  • Was enrolled in a program leading to a degree, certificate or other recognized postsecondary educational credential for at least one academic period beginning in the tax year.
  • Carried at least half the normal full-time workload for the course of study.
  • Didn't make an election to claim the AOTC for 4 earlier tax years.
  • Hasn't completed the first 4 years of postsecondary education before the beginning of the tax year.
  • Doesn't have a federal or state felony conviction for possessing or distributing a controlled substance as of the end of the tax year.

Note: You can't claim the AOTC on either an original or an amended return if the student (you, your spouse or your dependent student claimed on the return) didn't have a TIN by the due date of your return (including extensions), even if the student later gets one of those numbers.

 

Subcategory:

Frequently Asked Question Subcategories for Childcare Credit, Other Credits

Child and Dependent Care Credit & flexible benefit plans
Child Tax Credit
Credit for the elderly or the disabled
Education credits
Other credits

 

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