I have a couple who files as MFS because of student loan issues. They have one child. Both parents set aside $2500 in an employer-provided Dependent Care Account. I know they are not eligible for the Child Care "Credit", however it was my understanding that they still qualify for the "exclusion", where neither of them should have to pay taxes on the $2500 they used for daycare.
When I try to file, one return is rejected because the child's SSN is found on the other tax return that was accepted. How do I get the exclusion to go through for both of them?
Is this what youre referring to?
I don't think that's the situation, these spouses live together. They are just victims of the insane rules concerning forgiveness of student loans for someone who works in a public-service job (like teaching at an inner-city school) for ten years. If the couple files jointly, the combined income is used to disqualify the one who would otherwise qualify for loan forgiveness.
I think they made a mistake by splitting the $5,000 dependent-care contribution. But I'm not sure how the first MFS return would have allowed it, either.
Yes, that is the area. I checked Box B on the MFS Smart Worksheet for each person. One was accepted, one was not. So I unchecked the box and refiled the rejected return and it was once again rejected, with the error still indicating the SSN has been used on a different return.
Is this the first year they have done that? What happened in 2018?
On the rejected return, what amount do you have on Line 21? It should be $2,500.
The 2441 instructions seem to contemplate a situation where an MFS filing can claim the exclusion in Part III. There is probably a convoluted path to an answer, if you want to spend half a day researching it.
If your filing status is married filing separately, see Married
Persons Filing Separately, earlier. Are you considered
unmarried under that rule?
Yes. Enter your earned income (from line 18) on
line 19. On line 21, enter $5,000.
No. Enter your spouse's earned income on line 19. If
you or your spouse was a full-time student or
disabled in 2019, see the instructions for lines 4 and
5. On line 21, enter $2,500.