IRS Babysitting Position

[Edsel]

Hard to find guidance on this subject. 

Taxpayer has W-2 with $5000 in box 10.  This is a benefit which pays (or reimburses) taxpayer for babysitting expense.

Taxpayer actually paid $18,000 for babysitting expense for 2 kids.  As we know, the maximum base for the credit is limited to $6000, and these taxpayers are entitled to 20% of that - credit of $1200.

Ugly letter from IRS disallows $1000 of the credit.  They claim the $6000 base must be reduced by the $5000 employer benefit.  Their reduced credit is thus only $200 and now they are wanting the $1000 difference to be paid.

One problem - taxpayers net expense is not $1000, it is $13,000.  ($18,000 actually paid minus $5000 from employer).  This is still gobs and gobs of money to qualify $6000 of allowable base.

What say ye?  Is the IRS correct in ignoring the remainder of this huge outlay?

 

[Lion EA]

Yes

[Pacun]

IRS is correct and ATX does a good Job when you enter W-2 correctly.

[grandmabee]

Yes IRS is correct and it ATX does do it correct.

 

[jklcpa]

16 hours ago, Edsel said:

Hard to find guidance on this subject. 

Taxpayer has W-2 with $5000 in box 10.

It's in the instructions for form 2441, line 12.

Did you enter the $5,000 in your tax program so that it flows to line 12 on page 2 of the 2441?   It will ultimately end up in the bottom section of pg 2 where it will offset the $6000 max.

[Edsel]

Thanks to all.  Not the answer I wanted, nor is it fair, but I will proceed as if your answers are correct.  Apparently I didn't work through Form 2441 or didn't enter anything from box 10, W-2.  Either way, my bad.

[Pacun]

Yes, please proceed as if our answers are correct because there is no way you can convince the IRS that your clients deserve the full credit as you requested it.

[TAXMAN]

This is one area where true cost have not kept up with return allowances. I have several clients who make a darn good living by handling 5 kids. IRS is right. Sorry. Even most states either allow a small credit or deduction based on the IRS credit.

[BulldogTom]

On 3/17/2018 at 10:58 PM, Edsel said:

Thanks to all.  Not the answer I wanted, nor is it fair, but I will proceed as if your answers are correct.  Apparently I didn't work through Form 2441 or didn't enter anything from box 10, W-2.  Either way, my bad.

Actually the IRS position makes sense.   Only 3K of Child Care expense is allowed for the credit per child, regardless of how much you actually pay.   That is pretty clear in the rules.   Since the employer provided care was not taxable, you can't deduct the amount of the 3K in allowed expense that was not taxable, or you would have a double dip.  Allowing you to apply the employer reimbursement to the amounts above 3K would mean you got to blow past the statutory limit.  

"Fair" is a very bad term to use in the context of tax.   It all depends on the point of view.

Tom
Modesto, CA

[Gail in Virginia]

34 minutes ago, BulldogTom said:

"Fair" is a very bad term to use in the context of tax.   It all depends on the point of view.

Tom
Modesto, CA

Our tax system was not designed or ever intended to be "fair."  It is a progressive tax intended to tax the wealthy at higher rates (although with more loopholes) than the poor, and to accomplish certain social and economic goals that have nothing to do with taxation. 

[Edsel]

Thanks to all who have responded.  "Fair" is very nebulous, but what seems to be unfair is the huge amounts being paid, so little credit being given, and then assistance being allowed to "dry up" the benefit leaving so much on the table.

The days of the Reagan approach to allow COLAs to apply to standard deductions and tax brackets left many, many things that did not move with inflation.  The subject Child Care is one of them.  The $6000 base for credit has been around since at least 1979 and has never been increased.  In the meantime, the cost of getting someone to watch your child has multiplied exorbitantly.

[grandmabee]

I so agree.  I have couples paying over 14,000 for daycare for two kids and only get 6, 000.   Needs to be updated.

[WITAXLADY]

good answer Gail!!

[SaraEA]

This was a political decision back then.  The credit was based on $2400 until around 2003, when it was raised to $3000--neither of which came close to covering the cost at the respective times.  The conservative politicians did not include an inflation adjustment because it was felt that moms should stay home with their kids, and they didn't want to give them too much of a tax break so they would want to go to work instead.  What I don't get is how so many parents pay enormous sums for child care, yet child care workers and home care providers get paid poverty level wages.  Where the heck is all that money going?

[Catherine]

I think I am VERY tired tonight.  I read the topic name, and my first thought was, "Why does the IRS have babysitter positions open?  How young are they hiring new people?"

[TAXMAN]

Yep that's what I thought when I saw the heading. I am gonna apply. Now it takes both incomes to make ends meet. They never that coming.

Edited March 21, 2018 by TAXMAN
hit enter too soon

[Lion EA]

When I was a single mom with a young son, I discovered that it was cheaper to take vacation time when my son had school breaks and take us both to DisneyWorld (airfare from CT/NY and onsite hotel and meals and...) than to pay all-day daycare.  We did that about every other year (couldn't always get time off work) over his winter or spring break or long Thanksgiving weekend.  Both of us had fun.  And, it didn't cost me any more than if we were home and I was at work.  Of course, it meant planning ahead to get the best deals, but it was worth it !!

[Lee B]

My brother married a Canadian and they ended up living in Ontario.

My sister in law received monthly payments from the government to encourage her to stay home with their two children while they were growing up.

[Medlin Software, Dennis]

The actual cost to care for a child seems never to be part of such calculations.  Foster care, adoption assistance, child support, etc.