IRS Publication 503 (Child and Dependent Care Expenses (for 2020 Returns); IRS Form 2441 (Child and Dependent Care Expenses) and Instructions (2020)
The IRS has released the latest versions of Publication 503 and Form 2441 (and its accompanying instructions) for the 2020 tax year. Publication 503 explains the requirements that taxpayers must meet to claim the dependent care tax credit (DCTC) under Code § 21 for child and dependent care expenses. Taxpayers file Form 2441 with Form 1040 to determine the amount of their available dependent care tax credit (DCTC), and DCAP participants must file it with Form 1040 to support the income exclusion for their DCAP reimbursements. The 2020 versions of these items are substantially similar to their 2019 counterparts.
EBIA Comment: Publication 503 is written primarily to help taxpayers determine whether expenses qualify for the DCTC. While similar requirements must be met for expenses to be reimbursable under a DCAP, caution is advised when consulting the publication for this purpose because there are some differences. For example, the DCTC and DCAPs have different rules about the maximum amount and timing of expenses that can be taken into account. 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 reimbursement for the year. Employees who received $5,000 of DCAP reimbursements for 2020 (the maximum DCAP exclusion for most participants) can still take a partial DCTC based on up to $1,000 of their 2020 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 XI.D (“Who Is a Qualifying Child Under Code § 152?”), XXIII.C (“DCAP Participation vs. Claiming the Dependent Care Tax Credit”), XXIV (“What Expenses Can Be Reimbursed Under a DCAP?”), and XXV.H (“Form 2441—Employees Must File It With Their Form 1040”). You may also be interested in our webinar “FSA Relief Under the Consolidated Appropriations Act, 2021” (recorded on 2/3/2021).
Contributing Editors: EBIA Staff.