Dependent Care Benefits

If you received dependent care benefits from your employer, you must use Part III of Form 2441 to determine the amount of these dependent care benefits that are tax free (excluded from your gross income). You may be able to take an exclusion or deduction for the dependent care benefits even if you cannot take the child and dependent care tax credits.

What amount of dependent care benefits can I exclude?

The amount of dependent care benefits you can exclude is limited to the smallest of:

• the total amount of the benefits (box 10 of form W-2)
• the total amount of qualified expenses you incurred
• your earned income
• your spouse's earned income or
• $5,000 ($2,500 if married filing separately)

Benefits in excess of the excludable amount are taxable income and must be added to the amount you report on Form 1040 line 7.