The IRS has released Form 2441 (Child and Dependent Care Expenses) and its accompanying instructions for the 2016 tax year. Form 2441 is a dual-purpose form. Taxpayers file it with Form 1040 to determine the amount of their available dependent care tax credit (DCTC). In addition, DCAP participants must file it with Form 1040 to support the income exclusion for their DCAP reimbursements. The 2016 Form and instructions are substantially the same as their 2015 counterparts.
EBIA Comment: The expenses that can be used to calculate the DCTC for a tax year are limited to $3,000 for one qualifying individual and $6,000 for two or more. However, these limits are reduced by the amount of any DCAP reimbursements for the year. Employees who receive $5,000 of reimbursements for 2016 (the maximum DCAP exclusion for most taxpayers) can still take a partial DCTC based on up to $1,000 of their 2016 dependent care expenses that exceed $5,000, if they have two or more qualifying individuals and meet other DCTC requirements. For more information, see EBIA’s Cafeteria Plans manual at Sections XXIII.C (“DCAP Participation vs. Claiming the Dependent Care Tax Credit”) and XXV.H (“Form 2441—Employees Must File It With Their Form 1040”).
Contributing Editors: EBIA Staff.