Dependent and Daycare Question...

Previous | Next
 rated by 0 users
Latest post 01-11-2013 10:07 AM by Drew. 11 replies.
  • 01-09-2013 4:06 PM

    Dependent and Daycare Question...

    I recently agreed to allow my ex to claim both of my children for last year. Typically we each claim one. My question is about the daycare credit. We each pay half of daycare for our children. Although she is claiming both of my children as dependents, am I still allowed to claim what I paid for daycare as I normally do? The agreement made no mention of daycare credit or anything else so I assume she can't claim that she also paid the full amount of daycare last year too. Can I still claim this daycare expense without claiming my child as a dependent or how will this work? Thanks.

  • 01-09-2013 7:16 PM In reply to

    Re: Dependent and Daycare Question...

    The IRS has a web page that has information and instructions on child care deductions:

    http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/Child-Care-Credit,-Other-Credits

    Also read Taxagent's comments about Form 8332 in the following thread:

    http://community.lawyers.com/forums/t/128137.aspx

    If all that confuses you (it certainly confuses me) then you'll need to discuss this with a tax pro.

     

     

    • The right of the people 
    • to keep and bear arms,
    • shall not be infringed.
  • 01-09-2013 7:18 PM In reply to

    Re: Dependent and Daycare Question...

    O.k., for the purposes of my answer, I'll assume that the children were under age 13 in 2012, they were U.S. citizens or residents, and that they did not provide over one half their total support. I'll also assume that the children resided with you for the greater part of the year (i.e. at least 184 days of year), which would make you the custodial parent for federal tax purposes. In that case, you would be the parent eligible to claim the dependent exemption for the children unless you execute a waiver agreeing not to claim the dependent exemptions for them and instead allowing the noncustodial parent to claim them. Form 8332 may be used for the waiver. I assume that it is this waiver that you are referring to when you say you are allowing your ex to claim the children.

    If those assumptions are correct, then you would still be eligible to claim the child and dependent care credit for the children even though you gave up the dependent exemption to the noncustodial parent. Internal Revenue Code (IRC) § 21 provides for child and dependent care credit. In general, the children must be under age 13 (or, if older, physically or mentally unable to care for himself/herself) and must qualify as your dependent under IRC § 152 for you to get the credit. However, IRC § 21(e)(5) specifically states that the determination of dependent is made without regard to any waiver the custodial parent gives the noncustodial parent allowing the noncustodial to claim the dependent exemption. So, the custodial parent still gets the child and dependent care credit (and the noncustodial parent is not eligible to claim it) even though the noncustodial parent is claiming the dependent exemption.

    This is explained in IRS publication 503.

  • 01-09-2013 8:13 PM In reply to

    • Drew
      Consumer
    • Top 10 Contributor
    • Joined on 03-30-2000
    • PA
    • Posts 49,591

    Re: Dependent and Daycare Question...

    Caution you can only seek credit for sums you actually paid....your post is a bit unclear...did the new deal not cost you you head of household status?



  • 01-10-2013 4:13 PM In reply to

    Re: Dependent and Daycare Question...

    Ok...Just to clarify...I am the non-custodial parent. Our Order states that we each claim one of our two children. However, to resolve a recent financial matter we agreed that she would be able to claim both children as dependents this year. This was also put in an order. My question then is how do I go about still claiming what I paid for daycare (which was half) for last year if my children
    are not listed as dependents. I do plan on talking with my tax preparer about. this, but was trying to get some info on the topic before then. 

  • 01-10-2013 4:31 PM In reply to

    • Drew
      Consumer
    • Top 10 Contributor
    • Joined on 03-30-2000
    • PA
    • Posts 49,591

    Re: Dependent and Daycare Question...

    I think you have problems to claim child care as NCP for a child not your dependent for other purposes --but the only answer I'd trust is from 'taxagent."

    I also think you have problems as not being a head of household if you have no dependents.

    I also think your EX as CP has a problem to claim child care expenses for the 1/2 you paid and she did not.

    Did you two sort this out before you did it ?

     



  • 01-10-2013 4:31 PM In reply to

    Re: Dependent and Daycare Question...

    gooddad2011:
    Ok...Just to clarify...I am the non-custodial parent. Our Order states that we each claim one of our two children. However, to resolve a recent financial matter we agreed that she would be able to claim both children as dependents this year. This was also put in an order. My question then is how do I go about still claiming what I paid for daycare (which was half) for last year if my children are not listed as dependents.

    You can't claim the child and dependent care credit even if you do take the dependent exemption. Under the rules for the child and dependent care credit, the credit only goes to the custodial parent (i.e. the parent that had custody of the child for the greater part of the year) in these situations. So if you claimed the credit in prior years when you took the dependent exemption for the one kid based on the waiver the custodial parent gave (or should have gave) you, you took a credit you were not allowed to take. IRC § 21(e)(5) is very specific on that, stating that the child will be a qualifying child "with respect to the the custodial parent (as defined in section 152(e)(4)(A)), and shall not be treated as a qualifying child with respect to the noncustodial parent." (bolding added). If your tax preparer tells you something different, then he or she is unfamiliar with these rules and you need a different tax preparer.

  • 01-10-2013 4:51 PM In reply to

    Re: Dependent and Daycare Question...

    In short, in divorced/separated parent situations, the child and dependent care credit may only be claimed by the custodial parent and the noncustodial parent cannot claim the credit, regardless of which parent is taking the dependent exemption for the child.

  • 01-10-2013 5:01 PM In reply to

    • Drew
      Consumer
    • Top 10 Contributor
    • Joined on 03-30-2000
    • PA
    • Posts 49,591

    Re: Dependent and Daycare Question...

    And to make the answer worse --remember she cannot claim child care either for the payments she did not actually make.



  • 01-10-2013 6:06 PM In reply to

    Re: Dependent and Daycare Question...

    Thanks Drew. Your answers actually make sense. She cannot claim to have paid expenses that I have done.I have had a former IRS employee and current national company rep prepare my taxes and he has not had a problem following my ordered arrangement. I know many other non custodial parents who either claim one child every other year or do it the same as me with no issues or audits. So, for someone to say this is not possible, I know this is untrue. I thought this would be a simple question, but it seems to require complex answers from some. Thanks

  • 01-11-2013 1:26 AM In reply to

    Re: Dependent and Daycare Question...

    gooddad2011:
    I have had a former IRS employee and current national company rep prepare my taxes and he has not had a problem following my ordered arrangement. I know many other non custodial parents who either claim one child every other year or do it the same as me with no issues or audits. So, for someone to say this is not possible, I know this is untrue.

    I'm sorry, but I'm a lawyer and I've been in tax practice in some capacity for over 20 years, including with the IRS. I know the tax law, better than many "tax preparers." Many of the those who work for some of the big national companies get only a few months of training before they start preparing returns for customers and don't handle tax matters all year around. They know only the basics and even get some of the basics wrong. They rely a great deal on the tax software the firm provides them to do their work, and that's a problem because tax software, as good as it is, is no substitute for really knowing the tax law. That's why I'm not a big fan of those big national tax prep firms. I've had to fix many problems they've gotten wrong for their customers over the years.

    As for audits, the IRS computer cannot catch all these errors because all the information needed to do that is not on the return, and the IRS only selects a small portion of the returns for a real live audit with an examiner. So the fact that you and a few others you know have never been audited is not a confirmation that you got things right on your returns.

    IRC § 21(e)(5) makes it very clear when it specifically says the child "shall not be treated as a quallifying individual with respect to the noncustodial parent."

    The applicable tax regulation explains it a bit better. Treas. Reg. § 1.21-1(b)(5)(ii) says:

    "Custodial parent allowed the credit. A child to whom this paragraph (b)(5) applies is the qualifying individual of only one parent in any taxable year and is the qualifying child of the custodial parent even if the noncustodial parent may claim the dependency exemption for that child for that taxable year. See section 21(e)(5). The custodial parent is the parent having custody for the greater portion of the calendar year. See section 152(e)(4)(A)."

    The IRC and the tax regulations are the tax law. You can't get a more official answer on the issue than that. But I know they are written in tax legalese and are not always very easy for the typical taxpayer to understand. That's why, for better or worse, there are tax lawyers. 

    The IRS explains it in more plain language on its forms and web site. The IRS instructions for Form 2441 (which is the form for the child and dependent care credit) says: "The noncustodial parent cannot treat the child as a qualifying person even if that parent is entitled to claim the child as a dependent under the special rules for a child of divorced or separated parents."

    IRS Tax Topic 602 on the child and dependent care credit says the same thing: "A noncustodial parent may not treat a child as a qualifying individual for purposes of the credit, even if the noncustodial parent may claim an exemption for the child."

    So, if you still don't believe that I have it right and your preparers have gotten it wrong, I suggest you ask the preparer to look at IRC § 21(e)(5), Treas. Reg. § 1.21-1(b)(5), the Form 2441 instructions, and Tax Topic 602 and ask if he/she still believes you are eligible for the credit. Or have him ask one of the firm's tax law experts to look at those materials. If the tax prep firm says the noncustodial parent may claim the child and dependent care credit after reading those materials, ask the preparer to cite you the specific law that supports his/her position. I'd love to hear the answer. If he/she can't cite you the law, then that's a red flag to you that the preparer doesn't know the law and apparently doesn't care if he or she gets it right. 

    gooddad2011:
    I thought this would be a simple question, but it seems to require complex answers from some.

    I'm sorry you thought my answers were "complex." The basic answer is simple: only the custodial parent may claim the dependent care credit; the noncustodial parent cannot claim it even if the noncustodial parent can claim the dependent exemption for the child. And Drew is right, the custodial parent gets the credit only for what he or she actually spent. What this means is that no one gets a  tax credit for the care expenses the noncustodial parent pays for. Yes, I know it sucks. But that's the rule that Congress wrote. 

    While the basic answer is simple, I've tried in my answers to not only provide you the basic answer like I did in the last paragraph, but also to explain where in the law I found it. The reason for that is that you never want to rely on what some anonymous person on the internet tells you about the law without looking at the actual law or a trusted source (like the IRS website) to verify that the person knows what he or she is talking about. There are just too many sites out there with bad information. So, my answer here is a bit long. But you have the sources I relied upon up above and can use them to verify what the law is and to verify whether your tax preparer knows his/her stuff. You did the right thing in asking the question. I hope that what I've given you here will help you understand the law on this a bit better. 

  • 01-11-2013 10:07 AM In reply to

    • Drew
      Consumer
    • Top 10 Contributor
    • Joined on 03-30-2000
    • PA
    • Posts 49,591

    Re: Dependent and Daycare Question...

    Well lets put it this way --IF you get audited  you are a sitting duck for interest and penalities if you took deductions you were not entitled to take --and given it not a grey area but you did it in direct violation of the rules I suspect the IRS could rattle a few more chains like fraud and that open up a lot more .

    Look, I don't doubt that many a support order says each parent must pay 1/2 day care or something like that but that is NOT a tax smart approach to the issues. 

    But if your relationship with EX is somewhat civil that does not preclude structuring who pays what and who claims what as to make the tax rules work  and it may not be necessary to rewrite the order --may be safer --buts thats different.

    Looking ahead toward college --if financial aid is an issue you want to take an extra careful look at who claims the child as dependent for those years as the  aid logic under FAFSA (the most common) is keyed to the  parent (and any new spouse) who treats child as dependent and ignores the other --its a whole another set of rules and "aid" more be a bigger nut than "tax"



Page 1 of 1 (12 items) | RSS

My Community

Community Membership New Users: Search Community