2007 Instructions for Form 2441

Child and Dependent Care Expenses

Changes To Note

New definition of earned income. When you figure your credit for child and dependent care expenses, your earned income no longer includes employee compensation that is nontaxable. However, you can elect to include any nontaxable combat pay in earned income to figure the credit. See the instructions for Line 4 on page 3.

Part-time work and temporary absences from work. You may be able to figure your credit using expenses for care while you were temporarily absent from work or working part-time. For more details, see Pub. 503, Child and Dependent Care Expenses. Purpose of Form

Purpose of Form

If you paid someone to care for your child or other qualifying person so you (and your spouse if filing a joint return) could work or look for work in 2007, you may be able to take the credit for child and dependent care expenses. But you must have had earned income to do so. If you can take the credit, use Form 2441 to figure the amount of your credit.

If you received any dependent care benefits for 2007, you MUST use Form 2441 to figure the amount, if any, of the benefits you may exclude from your income on Form 1040, line 7. You must complete Part III of Form 2441 before you can figure the credit, if any, in Part II.

Definitions

Dependent Care Benefits

These include amounts your employer paid directly to either you or your care provider for the care of your qualifying person(s) while you worked. These benefits also include the fair market value of care in a day-care facility provided or sponsored by your employer. Your salary may have been reduced to pay for these benefits. If you received dependent care benefits, they should be shown in box 10 of your 2007 W-2 form(s).

Qualifying Person(s)

A qualifying person is:

• Any child under age 13 whom you can claim as a dependent (but see Exception for Children of Divorced or Separated Parents below). If the child turned 13 during the year, the child is a qualifying person for the part of the year he or she was under age 13.
• Your disabled spouse who is not able to care for himself or herself.
• Any disabled person not able to care for himself or herself whom you can claim as a dependent (or could claim as a dependent except that the person had gross income of $3,400 or more). But if this person is your child, see Exception for Children of Divorced or Separated Parents below.

To find out who is a dependent, see Pub. 501, Exemptions, Standard Deduction, and Filing Information.

Caution: To be a qualifying person, the person must have shared the same home with you in 2007.

Exception for Children of Divorced or Separated Parents. If you were divorced, legally separated, or lived apart from your spouse during the last 6 months of 2007, you may be able to take the credit or the exclusion even if your child is not your dependent. If your child is not your dependent, he or she is a qualifying person only if all five of the following apply.

1. You had custody of the child for a longer time in 2007 than the other parent. See Pub. 501 for the definition of custody.
2. One or both of the parents provided over half of the child's support in 2007.
3. One or both of the parents had custody of the child for more than half of 2007.
4. The child was under age 13 or was disabled and could not care for himself or herself.
5. The other parent claims the child as a dependent because—

• As the custodial parent, you signed Form 8332 or a similar statement agreeing not to claim the child's exemption for 2007, or
• Your divorce decree or written agreement went into effect before 1985 and it states that the other parent can claim the child as a dependent, and the other parent gave at least $600 for the child's support in 2007. But this rule does not apply if your decree or agreement was changed after 1984 to say that the other parent cannot claim the child as a dependent.

If this exception applies, the other parent cannot treat the child as a qualifying person even though the other parent claims the child as a dependent.

Qualified Expenses

These include amounts paid for household services and care of the qualifying person while you worked or looked for work. Child support payments are not qualified expenses. Also, expenses reimbursed by a state social service agency are not qualified expenses unless you included the reimbursement in your income.

Household Services. These are services needed to care for the qualifying person as well as to run the home. They include, for example, the services of a cook, maid, babysitter, housekeeper, or cleaning person if the services were partly for the care of the qualifying person. Do not include services of a chauffeur or gardener.

You can also include your share of the employment taxes paid on wages for qualifying child and dependent care services.

Care of the Qualifying Person. Care includes the cost of services for the qualifying person's well-being and protection. It does not include the cost of clothing or entertainment.

You can include the cost of care provided outside your home for your dependent under age 13 or any other qualifying person who regularly spends at least 8 hours a day in your home. If the care was provided by a dependent care center, the center must meet all applicable state and local regulations. A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit.

You can include amounts paid for items other than the care of your child (such as food and schooling) only if the items are incidental to the care of the child and cannot be separated from the total cost. But do not include the cost of schooling for a child in the first grade or above. Also, do not include any expenses for sending your child to an overnight camp.

Medical Expenses. Some disabled spouse and dependent care expenses may qualify as medical expenses if you itemize deductions on Schedule A. See Pub. 503, Child and Dependent Care Expenses, and Pub. 502, Medical and Dental Expenses, for details.

Earned Income

Earned income includes the following amounts.

• The amount shown on Form 1040, line 7, minus (a) any amount included for a scholarship or fellowship grant that was not reported to you on a W-2 form, (b) any amount also reported on Schedule SE (Form 1040) because you are a member of the clergy or you received 108.28 or more of church employee income, and (c) any amount received as pension or annuity from a nonqualified deferred compensation plan or a section 457 plan. This amount may be reported in box 11 of your W-2 form. If you received such an amount but box 11 is blank, contact your employer for the amount received as a pension or annuity. For purposes of Part III of Form 2441, earned income does not include any dependent care benefits shown on line 10 of Form 2441.
• The amount shown on Schedule SE, line 3, minus any deduction you claim on Form 1040, line 28. If you use either optional method to figure self-employment tax, subtract any deduction you claim on Form 1040, line 28, from the total of the amounts shown on Schedule SE, Section B, lines 3 and 4b. If you received church employee income of $108.28 or more, subtract any deduction you claim on Form 1040, line 28, from the total of the amounts shown on Schedule SE, Section B, lines 3, 4b, and 5a.
• If you are filing Schedule C or C-EZ Form 1040) as a statutory employee, the amount shown on line 1 of the schedule.

Note: You must reduce your earned income by any loss from self-employment.

Special Situations.

If you are filing a joint return, disregard community property laws. If your spouse died in 2007 and had no earned income, see Pub. 503. If your spouse was a student or disabled in 2007, see the instructions for line 5.

Additional Information

For more details, see Pub. 503.

Who Can Take the Credit or Exclude Dependent Care Benefits?

You can take the credit or the exclusion if all six of the following apply.

1. Your filing status is Single, Head of household, Qualifying widow(er) with dependent child, or Married filing jointly. But see Married Persons Filing Separate Returns below.
2. The care was provided so you (and your spouse if you were married) could work or look for work. However, if you did not find a job and have no earned income for the year, you cannot take the credit or the exclusion. But if your spouse was a student or disabled, see the instructions for line 5.
3. You (and your spouse if you were married) paid over half the cost of keeping up your home. The cost includes rent, mortgage interest, real estate taxes, utilities, home repairs, and food eaten at home.
4. You and the qualifying person(s) lived in the same home.
5. The person who provided the care was not your spouse or a person whom you can claim as a dependent. If your child provided the care, he or she must have been age 19 or older by the end of 2007.
6. You report the required information about the care provider on line 1 and, if taking the credit, the information about the qualifying person on line 2.

Married Persons Filing Separate Returns. If your filing status is married filing separately and all of the following apply, you are considered unmarried for purposes of figuring the credit and the exclusion on Form 2441.

• You lived apart from your spouse during the last 6 months of 2007, and
• The qualifying person lived in your home more than half of 2007, and
• You provided over half the cost of keeping up your home.

If you meet all the requirements to be treated as unmarried and meet items 2 through 6 listed earlier, you may take the credit or the exclusion. If you do not meet all the requirements to be treated as unmarried, you cannot take the credit. However, you may take the exclusion if you meet items 2 through 6.

Line Instructions

Line 1

Complete columns (a) through (d) for each person or organization that provided the care. You can use Form W-10, Dependent Care Provider's Identification and Certification, or any other source listed in its instructions to get the information from the care provider. If you do not give correct or complete information, your credit (and exclusion, if applicable) may be disallowed unless you can show you used due diligence in trying to get the required information.

Due Diligence. You can show a serious and earnest effort (due diligence) to get the information by keeping in your records a Form W-10 completed by the care provider. Or you may keep one of the other sources of information listed in the instructions for Form W-10. If the provider does not give you the information, complete the entries you can on line 1 of Form 2441. For example, enter the provider's name and address. Enter "See Page 2" in the columns for which you do not have the information. Then, on the bottom of page 2, explain that the provider did not give you the information you requested.

Columns (a) and (b). Enter the care provider's name and address. If you were covered by your employer's dependent care plan and your employer furnished the care (either at your workplace or by hiring a care provider), enter your employer's name in column (a). Next, enter "See W-2" in column (b). Then, leave columns (c) and (d) blank. But if your employer paid a third party (not hired by your employer) on your behalf to provide the care, you must give information on the third party in columns (a) through (d).

Column (c). If the care provider is an individual, enter his or her social security number (SSN). Otherwise, enter the provider's employer identification number (EIN). If the provider is a tax-exempt organization, enter "Tax-Exempt" in column (c).

Column (d). Enter the total amount you actually paid in 2007 to the care provider. Also, include amounts your employer paid to a third party on your behalf. It does not matter when the expenses were incurred. Do not reduce this amount by any reimbursement you received.

Line 2
Complete columns (a) through (c) for each qualifying person. If you have more than two qualifying persons, attach a statement to your return with the required information. Be sure to put your name and social security number (SSN) on the statement. Also, enter "See Attached" on the dotted line next to line 3.

Column (a). Enter each qualifying person's name.

Column (b). You must enter the qualifying person's SSN unless he or she was born and died in 2007. If you do not enter the correct SSN, at the time we process your return, we may reduce or disallow your credit. If the person was born and died in 2007 and did not have an SSN, enter "Died" in column (b) and attach a copy of the person's birth certificate.

To find out how to get an SSN, see Social Security Number on page 19 of the Form 1040 instructions.

Column (c).
Enter the qualified expenses you incurred and paid in 2007 for the person listed in column (a). Do not include in column (c) qualified expenses—

• You incurred in 2007 but did not pay until 2007. You may be able to use these expenses to increase your 2007 credit.
• You incurred in 2006 but did not pay until 2007. Instead, see Credit for Prior Year's Expenses on the next page.
• You prepaid in 2007 for care to be provided in 2007. These expenses may only be used to figure your 2007 credit.
  

  
  TIP If you paid qualified expenses for the care of two or more qualifying persons, the $6,000 limit does not need to be divided equally. For example, if you paid and
  incurred $2,500 of qualified expenses for the care of one qualifying person and $3,500 for the care of another qualifying person, you can use the total, $6,000, to figure the credit.

Line 5

Spouse Who Was a Student or Disabled. Your spouse was a student if he or she was enrolled as a full-time student at a school during any 5 months of 2007. A school does not include a night school or correspondence school. Your spouse was disabled if he or she was not capable of self-care. Figure your spouse's earned income on a monthly basis.

For each month or part of a month your spouse was a student or was disabled, he or she is considered to have worked and earned income. His or her earned income for each month is considered to be at least $250 ($500 if more than one qualifying person was cared for in 2007). If your spouse also worked during that month, use the higher of $250 (or $500) or his or her actual earned income for that month. If, in the same month, both you and your spouse were either students or disabled, only one of you can be treated as having earned income in that month.

For any month that your spouse was not a student or disabled, use your spouse's actual earned income if he or she worked during the month.

Line 9

Credit for Prior Year's Expenses.

If you had qualified expenses for 2006 that you did not pay until 2007, you may be able to increase the amount of credit you can take in 2006. To figure the credit, see the worksheet under Amount of Credit in Pub. 503. If you can take a credit for your 2002 expenses, enter the amount of the credit and “CPYE” on the dotted line next to line 9. Also, enter the name and social security number of the person for whom you paid the prior year’s expenses to the right of this amount. Then, add the credit to the amount on line 9 and replace the amount on line 9 with that total. Also, attach a statement showing how you figured the credit.

Line 13

If you had a flexible spending account, any amount included on line 10 that you did not receive because you did not incur the expense is considered forfeited. Enter the forfeited amount on line 11. Do not include amounts you expect to receive at a future date.

Example. Under your employer's dependent care plan, you chose to have your employer set aside $5,000 to cover your 2007 dependent care expenses. The $5,000 is shown in box 10 of your W-2 form. In 2007, you incurred and were reimbursed for $4,950 of qualified expenses. You would enter $5,000 on line 12 and $50, the amount forfeited, on line 13.

Line 15

Enter the total of all qualified expenses incurred in 2007 for the care of your qualifying person(s). It does not matter when the expenses were paid.

Example. You received $2,000 in cash under your employer's dependent care plan for 2007. The $2,000 is shown in box 10 of your W-2 form. Only $900 of qualified expenses were incurred in 2007 for the care of your 5-year-old dependent child. You would enter $2,000 on line 10 and $900 on line 15.

Line 18

If your filing status is married filing separately, see Married Persons Filing Separate Returns on the previous page. Are you considered unmarried under that rule?

Yes. Enter your earned income (from line 15) on line 16. On line 18, enter the smaller of the amount from line 17 or $5,000.

No. Enter your spouse's earned income on line 16. If your spouse was a student or disabled in 2007, see the instructions for line 5. On line 18, enter the smaller of the amount from line 17 or $2,500.