Should there be a dependent care credit in the following situation? MFJ TP has w-2 income with 4,440 in box 10, SP has sch C income, Daycare expense of 3,425.

[wsalgren]

TP w-2 income 76,579, SP schedule C income is 2,477. The credit is being figured on the amount limited by SP income but should it be figured at all?

[rbynaker]

How could the employer have reimbursed them for $4,440 of dependent care expenses when there were only $3,425 of expenses?  Were there forfeitures included in the $4,440?

[sjrcpa]

The $4,440 is probably their salary reduction for DCB.

[rbynaker]

But if they forfeited the other $1,015 instead of being reimbursed, then it's not "DCB" taxable income.  ProSeries has a box to enter the forfeiture (between box 10 and box 11 on the W-2 Wks).

I've seen it go in different directions.  Some smaller employers don't have a clue what they're doing when it comes to benefits and they just run it in-and-out on the W-2 without properly accounting for the expenses.  Also, if there's a grace period allowed by the plan (75 days?), then the employer may not know how much to put in box 10 before the W-2 is due.  So if the box 10 amount is not the reimbursed amount (including within the grace period), then it's up to us to play the part of Paul Harvey and prepare the tax return based on the rest of the story.

[sjrcpa · Accepted solution]

No credit should be allowed. Have you entered the W-2 Box 10 amount in the software?

[wsalgren]

Yes I did and it shows in the worksheet. I didn't think that there should be a credit.

[garman22]

Wouldn't there be DCB they'd report as income?

[sjrcpa]

Yes - the excess of 4440 over 3425