Dependent Care Credit Question

[TaxMan60601]

So to add my humble oppinion though I see you already found it - for MFJ filesr, both should have earned income for DCE credit.

From instructions to the form:

'"Lines 4 and 5
If filing jointly, figure your and your spouse's earned income separately. Enter your earned income on line 4 and your spouse's earned income on line 5.
Earned income for figuring the credit includes the following amounts.
1. The amount shown on Form 1040, line 7; Form 1040A, line 7; or Form 1040NR, line 8; minus any amount:
a. Included for a scholarship or fellowship grant that was not reported to you on a Form W-2"

There is also:

"If You or Your Spouse Was a Student or DisabledYour spouse's earned income.

Your spouse was a full-time student if he or she was enrolled as a full-time student at a school for some part of each of 5 calendar months during 2013. The months need not be consecutive. A school does not include an on-the-job training course, correspondence school, or a school offering courses only through the Internet. Your spouse was disabled if he or she was not physically or mentally 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 2013). Enter that amount on line 5. 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.
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."

AFA I understood, he's not "full-time student" so for me case closed.

[MsTabbyKats]

Ok....Dad is Not a grad student. Dad has a PhD....and is doing cancer research. Dad gets paid on a grant to do research....but he does more than just sit around and think. He has active duties with his research and running the lab.

If I spoke to someone at IRS....at the complex issues dept that no longer exists....the agent would have probably told me to enter it as wages (without FICA ).......and to get a letter from his dept head.....outlining and explaining his duties....and that he reported to work daily...and runs the lab. It really is an "active income ".......unlike a Nobel Prize....which is a byproduct of the research.

Dealing with "research scholars" from.....far off lands.....is not cut and dry...like an American on a W-2.

Again....I am not taking an active role....or discussing with I R S.....because they owe money.....and it will be very hard for mom to understand why! If they were in the refund zone....I'd spend time trying to find an agent who deals with this stuff. There were a few that I used to call a lot....very knowledgeable......not just reading those lists of questions.

[kcjenkins]

I really just don't see the problem. He's saving over 4K on payroll taxes by not getting a W2, so they are still coming out ahead.

[MsTabbyKats]

I really just don't see the problem. He's saving over 4K on payroll taxes by not getting a W2, so they are still coming out ahead.

Well....in the world of wage earners....yes, they are coming out ahead....and there is no problem.

But research scholars are in a different world.....which is why I am so angry about "complex issues" not existing anymore.

Considering their education and what the do.....they make peanuts.

In private industry he'd make $250,000.....not $50,000.

Anyway....mom was told that the $5000 isn't taxable .....and I told her it was and I couldn't "force" the program.

[easytax]

Well....in the world of wage earners....yes, they are coming out ahead....and there is no problem.

But research scholars are in a different world.....which is why I am so angry about "complex issues" not existing anymore.

Considering their education and what the do.....they make peanuts.

In private industry he'd make $250,000.....not $50,000.

Anyway....mom was told that the $5000 isn't taxable .....and I told her it was and I couldn't "force" the program.

Kind of agreed with your thoughts ---- HOWEVER --- it was their choice to be academic and not private industry --- along with the school/research facility/institution to send a 1099 rather than a W-2. Therefore, if they do not pursue this for themselves --- why do/should you? (I know, your heart is in the injustice but if they won't -- don't get trapped)

Personal responsibility --- they can go to the facility; have things changed; amend later when the facility issues the W-2. Yes, it will cost (payroll tax, etc.) but they will get their deductions and credits, just like everyone else. They can make the choice --- from your information to them (make sure it is not "legal" advice, so you do NOT have liability).

[MsTabbyKats]

I gave mom no advice....just that...as she stated...unless she could get that "elusive" highest refund possible....she could do it herself.

I think, IMHO, that institutions may also report the income like this might be because the recipients aren't American, and couldn't care less about social security here..AND....some tax treaties exempt people from paying the SS here...because they are actually paying it in their home country.

I'm certainly not going to tell probably the biggest cancer research center in the country what to do!

[Margaret CPA in OH]

No authority here but I worked in academic research for about 15 years at several universities. Generally speaking, researchers are hired as tenured or nontenured staff but can also be graduate students or independent using the facilities while collaborating with others. Much of the time, grants are obtained by researchers but are awarded to and managed by the institution. I was paid by several grants including NIH and ACS.

My first job, during the Vietnam War, was lost because the researcher's grant was renewed but not funded due to the war. Some graduate students and post doctoral fellows are paid from institutions that have money (endowments, for example) to do so but others must find their own source of funding. Many foreign grad students and post docs bring their own grants/fellowships for living expenses and research expenses may be covered by the institutions for collaborative reasons.

All this to say that someone receiving grant money may or may not be an employee of the given institution and accounting for the funds just to treat a researcher as an employee may not be at all feasible. This case sounds as if the researcher procured his own funding and is not an employee of the institution but also is not self-employed in the traditional sense. He/they should have done a better job of understanding more thoroughly the tax ramifications of this income.

[MsTabbyKats]

The only real ramification is that:

1-The money mom thought was non-taxable is

2-They owe quite a bit

Even with the dcb....they would owe quite a bit

Of course they are ahead by not paying FICA .....but WE ALL KNOW....what it's like to deal with people who owe money....especially those expecting refunds.

[kcjenkins]

Yeah, we want us to be magicians and pull a nice refund out of thin air. Time for lots of subtle mention of how expensive it would have been had they taken a deduction ,they were not entitled to, and had to pay it back later with PENALTIES AND INTEREST. How lucky they are to get it right up front. Etc.