Child and Dependent Care Credit

[dmendel]

It has been noted here that Americans living and working abroad are entitled to the same deductions as those in the US with US income (eg, mortgage interest deduction). I wonder if this is true of the child care credit as well. I live in Canada and have nearly $15,000 in childcare expenses with licensed provincial daycare providers. I receive a tax notice from the providers every year and claim these expenses (up to the maximum limit) on my Canadian return. Can I do so on 1040 as well?

According to Topic 602, the credit can only be claimed if you meet the following condition (among others):

"You must report the name, address, and taxpayer identification number, (either the social security number, or the employer identification number) of the care provider on your return. If the care provider is tax exempt, you need only report the name and address on your return. You can use Form W-10 (PDF), Dependent Care Provider's Identification and Certification, to request this information from the care provider. If you do not provide information regarding the care provider, you may still be eligible for the credit if it is shown that you exercised due diligence in attempting to provide the required information."

Since the daycare providers do not have ITINs, would I still be able to report it? Since the licensed provincial daycare centres my kids attend are not-for-profit and hence "tax exempt," would they be tax exempt for US tax purposes? Would I be considered to have exercised due diligence in attempting to provide the required info? Should an explanatory note be included with my return?

[nelsona]

Of course.

[Greg]

Is it actually worth your time taking the deduction on your US return? I found the answer for me was no. The amount I saved was just owed to Canada. hardly worth taking the deduction. Not to mention it may be difficult for IRS to accept the expenses without the provider's SSN, I’m sure it has been done though.

Work the number’s to see what you come up with, but basically I have found not to waste my time looking for allot of deduction on my US return, simply because any savings is just owed back to Canada.

[nelsona]

This is not quite true for USC's living and working in canada, since they don't get any foreign tax credit on their Cdn return.

So if there is any tax owing on their US return, it behooves one to reduce it. This is a byproduct of the changes in the implementation of 2555.

[Greg]

Sorry, I did not catch his reference to actually working in Canada.