Tax questions

March 12, 2000

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15. See below for how to submit a question.

I participate in the Dependent Care Cafeteria Plan with my employer. A certain amount of my money is deducted from my gross earnings to establish a pretax account to pay for day care expenses. The amount that I reserved in this account -- $1,000 -- will not be enough cover the entire amount of day-care expenses that I will incur in 2000, about $2,000. If I keep good records, can I deduct the rest of that amount -- the $1,000 -- with my 2000 taxes?

The additional $1,000 cannot be taken as a deduction. However, a tax credit may be taken against the $1,000 by completing form 2441, "Child and Dependent Care Expenses." The base amount against which the credit is taken is a maximum of $4,800 for child care for two or more children or $2,400 for one child. These amounts are reduced by any amount deducted for a pretax account in a cafeteria plan. Therefore, your maximum amount to be used as the base for a credit is $3,800 or $1,400 as appropriate. Since your expense of $1,000 is less than either, it would be allowable to use in calculation of the credit. The credit amount would be from 20 percent to 30 percent of the $1,000 based on your Adjusted Gross income on line 34 of Form 1040.

The table showing you the appropriate percentages is given on Form 2441. On the Maryland return, you take your child care expenses as a subtraction from income on line 9. You use the amount from line 3 of the federal Form 2441.

Richard C. Gittelman, CPA, North Bethesda

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To ask a tax question, call Sundial, The Sun's telephone information service, at 410-783-1800. Call 410-268-7736 in Anne Arundel County, 410-836-5028 in Harford County, 410-848-0338 in Carroll County. Using a touch-tone phone, punch in the four-digit code 6225 after the greeting. To submit questions by e-mail and access an online tax guide, go to The Sun's Web site at www.sunspot.net/tax.

Selected questions will be answered in the Business section. No questions will be answered personally.

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