Dependency and Child Care Credit

[Peggy Cobb]

I'm wondering if I'm reading the child care credit rules wrong or if ATX has it coded wrong. I have had two cases where the single dad/head of household pays for child care, but doesn't claim the child as his dependent. Both returns were rejected because the dependent SS# was claimed on another return. Both fathers didn't claim the child as a dependent, but in both cases paid additional child care expenses and I had added the child care credit form. Once I removed the child care credit form the return was accepted.

So my question again - am I reading the rules wrong or does ATX have a coding error.

I sure would appreciate any insight.

[Lynn EA USTCP in Louisiana]

Child care credit goes to the one who claims the dependent, if that parent pays the costs. No dependent, no credit

[Janitor Bob]

what she said

[Cathy]

Peggy, There are times when a custodial parent (see Publication 504) can release exemption for the other parent to claim a child. The custodial parent can STILL claim the Head of Household filing status, Earned Income Credit and the Child Care Credit. See the paragraph below that appears in Publication 504. If that is the case in your situation, you enter the child's name and social security number at the bottom of the form for the Child Care Credit, also at the bottom of the Earned Income Tax worksheet for Qualifying Children (provided that the taxpayer's income justified the EIC), in addition to naming the child and his/her social security number in the Head Of Household Filing Status box.

From Publication 504:

Applying this special rule to divorced or separated parents (or parents who live apart). If a child is treated as the qualifying child of the noncustodial parent under the special rule for divorced or separated parents (or parents who live apart) described earlier, only the noncustodial parent can claim an exemption and the child tax credit for the child. However, the noncustodial parent cannot claim the child as a qualifying child for head of household filing status, the credit for child and dependent care expenses, the exclusion for dependent care benefits, and the earned income credit. Only the custodial parent, if eligible, or another eligible taxpayer can claim the child as a qualifying child for those four tax benefits. If the child is the qualifying child of more than one person for those tax benefits, the tiebreaker rules determine which person can treat the child as a qualifying child.

The above rules are only for parents who live apart....The above rules DO NOT apply to unwed parents living together. In that case, all tax benefits would either go to one parent or the other. If the two unwed parents who live together can't decide who will claim all of the tax benefits, the tie breaker says the tax benefits goes to the parent with the highest AGI.

[mcb39]

Cathy is correct. Non-custodial parent cannot claim the child care credit. The credit is lost since the custodial parent did not pay it.