Form 2441 Unusual Situation

[Ringers]

My client is a doctor and his spouse a nurse.  She works one day every other week and earned about $4500.  One of their two children attends a preschool 4 days a week

with tuition of over $3000 for the yer 2015.  The child, however, does not attend the school on the days the spouse works as a nurse.  Also, the other child is still at home being cared for by the wife on the days that the older child attends the preschool.

On the surface, the taxpayer and spouse seem to qualify for the child care credit on Form 2441 since they paid the qualifying organization $3000 to provide day care, both spouses worked during the year for parts of all 12 months of the year, the spouse with the lower W-2 income earned more than the $3000 maximum paid for the day care, and the child was a qualifying dependent.  The only thing is, that the day care was not on the days the spouse worked.

Am I overthinking this?

[Lion EA]

Isn't there a phrase something like "In order for the taxpayers to work"?  Someone must know a cite....

[jklcpa]

Pub 503, pg 6 under the heading "Work-Related Expense Test". It has some examples that might help.

 

[Ringers]

I Thought so too, Lion.  Everything I find only talks about qualified income and qualified expense, but I have not been able to find any cite referring to the requirement that the wages are earned on the same days as the child care expenses are incurred.

 

[jklcpa]

I would lean toward not taking this expense. The expense must allow the person to work. On the page of the pub I referenced, there is a section that discusses part-time work.

 

P

 

[Ringers]

Thanks Judy.  In looking up the examples, I found the following which seems to allow the credit in this case, even though the wife only works on a few of the days during the year when the day care is provided.

 

Part-time work. If you work part-time, you generally must figure your expenses for each day. However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Any day when you work at least 1 hour is a day of work.

 

So I guess I can use the expenses for the full tuition even though the wife only worked on about 8 or 10 of the days the dependent was in the preschool.  It just seems to violqte the spirit, but not the letter, of the code.

[Gail in Virginia]

Look at it this way:  maybe they are both only able to work because they have some time at home alone to keep them sane!

 

[Richcpaman]

WOW.

You are overthinking this.

Claim the credit.  If you are going to get into their shorts with that much detail, you have to back out.   She has earnings, her husband has earnings, child care was paid, claim the credit.

Rich

 

[Ringers]

Thank you all.  Gail and Rich, you have convinced me to take the credit.

[DANRVAN]

Have your tried reading the tax code?

§ 21 Expenses for household and dependent care services necessary for gainful employment.

"only if such expenses are incurred to enable the taxpayer to be gainfully employed for any period for which there are 1 or more qualifying individuals with respect to the taxpayer:"

[DANRVAN]

If not necessary for employment, no credit allowed.

[kcjenkins]

On 2/27/2016 at 6:22 AM, Gail in Virginia said:

Look at it this way:  maybe they are both only able to work because they have some time at home alone to keep them sane!

 

Dan, I think Gail has a good point.  

[Ringers]

Thanks Danrvan.

 

I am basing my decision on the following:

 

1.  The spouse is gainfully employed ($4500)

2.  Some of the days the child is in preschool correspond with the days the spouse works.  On the others she has to put the children in daycare outside the home, which she does not claim because she is already at the max for day care expenses.

3.  The IRS example from the regs stated below:

 

Part-time work. If you work part-time, you generally must figure your expenses for each day. However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Any day when you work at least 1 hour is a day of work.

 

 

[DANRVAN]

That might be a good point KC, but that would not qualify the expense under section 21(b)(2) since it is really a personal reason.

 

[DANRVAN]

56 minutes ago, RINGERS said:

 

Part-time work. If you work part-time, you generally must figure your expenses for each day. However, if you have to pay for care weekly, monthly, or in another way that includes both days worked and days not worked, you can figure your credit including the expenses you paid for days you did not work. Any day when you work at least 1 hour is a day of work.

-Remember the pub is not the final authority. The examples given are not all inclusive. It says you generally figure your expense for each day.

-Then is says if  you have to pay for the days you don't have to work along with the days you do work, you can include all the days and gives the following examples:

　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

-So if your situation falls under example two the IRS is generously allowing all five days to be claimed although only three days were spent working.

-In the example, the IRS is allowing  all the expense where the majority of the days are spent working.  It does not give an example where the parent is only working one day a week, or one day a month.

-I believe you need look to the tax code and ask yourself and your client if an entire year's worth of child care is a necessary expense for working only a handful of days; or if a proration is needed.

[jklcpa]

I agree with Dan and I think you should look at the bills. The day care facility may bill by the week or the month, but many that I've seen will break the bill down and state that the week's charge is for X number of days times a daily rate with an added $ charged if picking up later than agreed.  If that is the case, take only the days of care that correspond with the wife's work schedule. She may have some smaller credit out of this, but I don't think you should generalize as you are trying to where you said she is already over the maximum so that makes it ok.