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Steve Sims, Taxpayers' Rights Advocate.

What is Happening with the Nonrefundable Child and Dependent Care Credit?

Do you have questions about the nonrefundable Child and Dependent Care credit (CDC)? Prior to the nonrefundable legislation that was passed as part of Senate Bill 86 on March 24, 2011; we began working on the regulatory process to:

  1. Provide clarification as to what documentation is acceptable to identify the taxpayer’s claimed qualifying children and/or dependents.

  2. Provide clarification as to what documentation is acceptable to identify the taxpayer’s care provider and legal presence; and what documentation is acceptable to establish payment for care services in lieu of copies of cancelled checks and money orders.

We held an interested parties meeting here on May 31, 2011. As a result, we found practitioners’ concerns were focused on the taxpayer who made cash payments to the care provider. Such providers are often part of the underground economy and therefore there are no records available to verify cash payments made to them by the taxpayer. We also heard suggestions for making the process of requesting information from the child care provider easier for the taxpayer including an idea that we provide taxpayers with a form to use for collecting the identification and payment information from the provider.

We will consider all of the ideas that came out of the interested parties meeting when drafting the regulations. My advice as Advocate is to always get a receipt for any type of cash payment (regardless of whether or not it is being claimed as part of the CDC credit) and ask the provider questions about their licensing and/or identity information before leaving your child with them. If your clients leave their children with an unlicensed provider, such as a friend, relative, or neighbor, make sure they know that the reported expenses paid to their care providers on their tax returns for the CDC credit must be verifiable. Having all of the information up front is a great way to ensure that there are no surprises later!

We will provide more information on CDC credit requirements as we move forward in the regulatory process.

Steve Sims, EA
Taxpayers’ Rights Advocate

Follow me on Twitter at twitter.com/FTBAdvocate.

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