The home you keep must be the main home for both you and the qualifying person. Your home can be the main home even if the qualifying person does not live there all year because of his or her:

The costs of keeping up a home normally include property taxes, mortgage interest, rent, utility charges, home repairs, insurance on the home, and food eaten at home.

The costs of keeping up a home do not include payments for clothing, education, medical treatment, vacations, life insurance, transportation, or mortgage principal.

They also do not include the purchase, permanent improvement, or replacement of property. For example, you cannot include the cost of replacing a water heater. However, you can include the cost of repairing a water heater.

Payments you receive from a state that you use to keep up your home are funds provided by the state, not by you. You must provide more than half the cost of keeping up your home from your own funds to claim the credit for child and dependent care expenses.

If you and your family share living space with another family, your family and the other family are treated as separate households. (This rule applies only for purposes of the credit for child and dependent care expenses.) If you provide more than half the cost of running your household, you are keeping up a home.

If a qualified person lived with you for less than a full year, figure the cost of keeping up your home for that period. To do this, divide your cost for the year by 12 and multiply the result by the number of months the person lived with you. Count any partial month as a full month.

Earned income includes wages, salaries, tips, other taxable employee compensation, and net earnings from self-employment. A net loss from self-employment reduces earned income. Earned income also includes strike benefits and any disability pay you report as wages.

When figuring your earned income for the child and dependent care credit, do not count nontaxable employee compensation such as meals and lodging furnished for the convenience of the employer, voluntary salary deferrals, military basic quarters and subsistence allowances and in-kind quarters and subsistence, and military pay earned in a combat zone.

This section is for persons who are members of certain religious faiths that are opposed to participation in Social Security Act programs and have an IRS-approved form that exempts certain income from social security and Medicare taxes. These forms are:

Each form is discussed in this section in terms of what is or is not earned income for purposes of the child and dependent care credit. For information on the use of these forms, see Publication 517, Social Security and Other Information for Members of the Clergy and Religious Workers.

Whether or not you have an approved Form 4361, amounts you received for performing ministerial duties as an employee are earned income. This includes wages, salaries, tips, and other employee compensation (but does not include any employee compensation that is nontaxable, such as a housing allowance).

However, amounts you received for ministerial duties, but not as an employee, are not net earnings from self-employment for purposes of the child and dependent care credit. Examples include fees for performing marriages and honoraria for delivering speeches. Any income or loss from these activities is not taken into account in figuring earned income.

Any amount you received for work that is not related to your ministerial duties is earned income.

Whether or not you have an approved Form 4029, all wages, salaries, tips, and other employee compensation are earned income. However, any employee compensation that is nontaxable is not considered earned income.

In addition, amounts you received as a self-employed individual are not net earnings from self-employment for purposes of the child and dependent care credit, and are not taken into account in figuring earned income.

Earned income does not include pensions or annuities, social security payments, workers' compensation, interest, dividends, or unemployment compensation. It also does not include scholarship or fellowship grants, except amounts paid to you (and reported on Form W–2) for teaching, research, or other services.

Your spouse is treated as having earned income for any month that he or she is:

Figure the earned income of the nonworking spouse, described under (1) or (2) above, as shown under Earned Income Limit under How To Figure the Credit, later.

This rule applies to only one spouse for any one month. If, in the same month, both you and your spouse do not work and are either full-time students or physically or mentally not able to care for yourselves, only one of you can be treated as having earned income in that month.

You are a full-time student if you are enrolled at and attend a school for the number of hours or classes that the school considers full time. You must have been a student for some part of each of 5 calendar months during the year. (The months need not be consecutive.) If you attend school only at night, you are not a full-time student. However, as part of your full-time course of study, you may attend some night classes.

The term “school” includes elementary schools, junior and senior high schools, colleges, universities, and technical, trade, and mechanical schools. It does not include on-the-job training courses, correspondence schools, and night schools.

For this purpose, you are not considered to be working if you do unpaid volunteer work or volunteer work for a nominal salary.

If you work or actively look for work during only part of the period covered by the expenses, then you must figure your expenses for each day. For example, if you work all year and pay care expenses of $250 a month ($3,000 for the year), all the expenses are work related. However, if you work or look for work for only 2 months and 15 days during the year and pay expenses of $250 a month, your work-related expenses are limited to $625 (21/ months × $250).

Do not count as work-related expenses amounts you pay for child and dependent care while you are off work because of illness. These amounts are not paid to allow you to work. This applies even if you get sick pay and are still considered an employee.

Expenses for care do not include amounts you pay for food, clothing, education, and entertainment. However, you can include small amounts paid for these items if they are incident to and cannot be separated from the cost of caring for the qualifying person. Otherwise, see the discussion of Expenses partly work related, later.

Expenses to attend first grade or a higher grade are not expenses for care. Do not use these expenses to figure your credit.

You can count the cost of care provided outside your home if the care is for your dependent under age 13, or any other qualifying person who regularly spends at least 8 hours each day in your home.

You can count care provided outside your home by a dependent care center only if the center complies with all state and local regulations that apply to these centers.

A dependent care center is a place that provides care for more than six persons (other than persons who live there) and receives a fee, payment, or grant for providing services for any of those persons, even if the center is not run for profit.

The cost of sending your child to an overnight camp is not considered a work-related expense.

The cost of getting a qualifying person from your home to the care location and back, or from the care location to school and back, is not considered a work-related expense. This includes the costs of bus, subway, taxi, or private car. Also, if you pay the transportation cost for the care provider to come to your home, you cannot count this cost as a work-related expense.

Household services are ordinary and usual services done in and around your home that are necessary to run your home. They include the services of a housekeeper, maid, or cook. However, they do not include the services of a chauffeur, bartender, or gardener.

In this publication, the term housekeeper refers to any household employee whose services include the care of a qualifying person.

If part of an expense is work related (for either household services or the care of a qualifying person) and part is for other purposes, you have to divide the expense. To figure your credit, count only the part that is work related. However, you do not have to divide the expense if only a small part is for other purposes.

If you have expenses for meals that your housekeeper eats in your home because of his or her employment, count these as work-related expenses. If you have extra expenses for providing lodging in your home to the housekeeper, count these as work-related expenses also.

The taxes you pay on wages for qualifying child and dependent care services are work-related expenses. For more information on a household employer's tax responsibilities, see Employment Taxes for Household Employers, later.

You are not considered married if you are legally separated from your spouse under a decree of divorce or separate maintenance. You are eligible to take the credit on a separate return.

You are not considered married and are eligible to take the credit if all the following apply.

If your spouse died during the year and you do not remarry before the end of the year, you generally must file a joint return to take the credit. If you do remarry before the end of the year, the credit can be claimed on your deceased spouse's separate return.

To identify the care provider, you must give the provider's:

If the care provider is an individual, the taxpayer identification number is his or her social security number or individual taxpayer identification number. If the care provider is an organization, then it is the employer identification number (EIN).

You do not have to show the taxpayer identification number if the care provider is one of certain tax-exempt organizations (such as a church or school). In this case, write “Tax-Exempt” in the space where the tax form calls for the number.

If you cannot provide all of the information or the information is incorrect, you must be able to show that you used due diligence (discussed later) in trying to furnish the necessary information.

You can use Form W–10, Dependent Care Provider's Identification and Certification, to request the required information from the care provider. If you do not use Form W–10, you can get the information from:

You should keep this information with your tax records. Do not send Form W–10 (or other document containing this information) to the Internal Revenue Service.

If the care provider information you give is incorrect or incomplete, your credit may not be allowed. However, if you can show that you used due diligence in trying to supply the information, you can still claim the credit.

You can show due diligence by getting and keeping the provider's completed Form W–10 or one of the other sources of information listed earlier. Care providers can be penalized if they do not provide this information to you or if they provide incorrect information.

If the provider refuses to give you the identifying information, you should report whatever information you have (such as the name and address) on the form you use to claim the credit. Enter “See Page 2” in the columns calling for the information you do not have. On the bottom of page 2, explain that you requested the information from the care provider, but the provider did not give you the information. This statement will show that you used due diligence in trying to furnish the necessary information.

If you pay for services before they are provided, you can count the prepaid expenses only in the year the care is received. Claim the expenses for the later year as if they were actually paid in that later year.

Do not count 2002 expenses that you paid in 2003 as work-related expenses for 2003. You may be able to claim an additional credit for them on your 2003 return, but you must figure it separately. See Payments for previous year's expenses under Amount of Credit, later.

If a state social services agency pays you a nontaxable amount to reimburse you for some of your child and dependent care expenses, you cannot count the expenses that are reimbursed as work-related expenses.

Some expenses for the care of qualifying persons who are not able to care for themselves may qualify as work-related expenses and also as medical expenses. You can use them either way, but you cannot use the same expenses to claim both a credit and a medical expense deduction.

If you use these expenses to figure the credit and they are more than the earned income limit or the dollar limit, discussed later, you can add the excess to your medical expenses. However, if you use your total expenses to figure your medical expense deduction, you cannot use any part of them to figure your credit. For information on medical expenses, see Publication 502, Medical and Dental Expenses.

Amounts excluded from your income under your employer's dependent care benefits plan cannot be used to claim a medical expense deduction.

If your employer provides dependent care benefits under a qualified plan, you may be able to exclude these benefits from your income. Your employer can tell you whether your benefit plan qualifies. If it does, you must complete Part III of either Form 2441 or Schedule 2 (Form 1040A) to claim the exclusion. You cannot use Form 1040EZ.

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

Your employer must give you a Form W–2 (or similar statement), showing in box 10 the total amount of dependent care benefits provided to you during the year under a qualified plan. Your employer will also include any dependent care benefits over $5,000 in your wages shown in box 1 of your Form W–2.

Forfeitures are amounts credited to your dependent care benefit account (flexible spending account) and included in the amount shown in box 10 of your Form W–2, but not received because you did not incur the expense. When figuring your exclusion, subtract any forfeitures from the total dependent care benefits reported by your employer. To do this, enter the forfeited amount on line 13 of Form 2441 or Schedule 2 (Form 1040A).

Forfeitures do not include amounts that you expect to receive in the future.

If you exclude dependent care benefits from your income, the amount of the excluded benefits:

If you are legally separated or married and living apart from your spouse (as described under Joint Return Test, earlier), you are not considered married for purposes of the earned income limit. Use only your income in figuring the earned income limit.

If your spouse died during the year and you file a joint return as a surviving spouse, you are not considered married for purposes of the earned income limit. Use only your income in figuring the earned income limit.

You should disregard community property laws when you figure earned income for this credit.

If you are self-employed, include your net earnings in earned income. For purposes of the child and dependent care credit, net earnings from self-employment generally means the amount from line 3 of Schedule SE (either Section A or Section B) minus any deduction for self-employment tax on line 28 of Form 1040. Include your self-employment earnings in earned income, even if they are less than $400 and you did not file Schedule SE.

If you filed Schedule C or C–EZ to report income as a statutory employee, also include as earned income the amount from line 1 of that Schedule C or C–EZ.

You must reduce your earned income by any net loss from self-employment.

If your net earnings from self-employment are low or you have a net loss, you may be able to figure your net earnings by using an optional method instead of the regular method. Get Publication 533, Self-Employment Tax, for details. If you use an optional method to figure net earnings for self-employment tax purposes, include those net earnings in your earned income for this credit. In this case, subtract any deduction you claimed on Form 1040, line 28, from the total of the amounts on Schedule SE, Section B, lines 3 and 4b, to figure your net earnings.

Your spouse who is either a full-time student or not able to care for himself or herself is treated as having earned income. His or her earned income for each month is considered to be at least $250 if there is one qualifying person in your home, or at least $500 if there are two or more.

If your spouse works during that month, use the higher of $250 (or $500) or his or her actual earned income for that month.

If your spouse is a full-time student or not able to care for himself or herself for only part of a month, the full $250 (or $500) still applies for that month.

If, in the same month, both you and your spouse are either full-time students or not able to care for yourselves, only one spouse can be considered to have this earned income of $250 (or $500) for that month.

The dollar limit is a yearly limit. The amount of the dollar limit remains the same no matter how long, during the year, you have a qualifying person in your household. Use the $3,000 limit if you paid work-related expenses for the care of one qualifying person at any time during the year. Use $6,000 if you paid work-related expenses for the care of more than one qualifying person at any time during the year.

If you had work-related expenses in 2002 that you paid in 2003, you may be able to increase the credit on your 2003 return. Attach a statement to your form showing how you figured the additional amount from 2002. Then write “CPYE” and the amount of the credit on the dotted line next to line 9 on Form 2441 or in the space to the left of line 9 on Schedule 2 (Form 1040A). Also write the name and taxpayer identification number of the person for whom you paid the prior year's expenses. Then add this credit to the amount on line 9, and replace the amount on line 9 with the total.

You must complete Form 2441 and attach it to your Form 1040. Enter the credit on line 45 of your Form 1040.

You must complete Schedule 2 (Form 1040A) and attach it to your Form 1040A. Enter the credit on line 29 of your Form 1040A.

The amount of credit you can claim is limited to the amount of your regular tax (after reduction by any allowable foreign tax credit) plus your alternative minimum tax, if any. For more information, see Form 2441 or Schedule 2 (Form 1040A).

You cannot get a refund for any part of the credit that is more than this limit.

You may also have to pay state unemployment tax. Contact your state unemployment tax office for information. You should also find out whether you need to pay or collect other state employment taxes or carry worker's compensation insurance. A list of state unemployment tax agencies, including addresses and phone numbers, is in Publication 926.

If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.

The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.

To contact your Taxpayer Advocate:

For more information, see Publication 1546, The Taxpayer Advocate Service of the IRS.

To find out what services are available, get Publication 910, Guide to Free Tax Services. It contains a list of free tax publications and an index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax topics.