Child-care-pretax-with-Sch-C-loss

optional self-employment income would be the maximum $5,440, which is less than
$6,666 ($10,000 × 2/3).
For DCB purposes, earned income to include on Form 2441 is equal to the optional selfemployment
income less one-half of self-employment tax. Continuing with the example,
earned income would be $5,024 ($5,440 – $416) and the entire $5,000 DCB would be taxfree.
If the client doesn’t qualify for the optional method the DCB would be taxable.
The optional method is usually beneficial for taxpayers, but the tax savings as well as any
changes to refundable credit calculations (earned income credit and additional child tax
credit) should be weighed against the self-employment tax obligation. The optional
method may be used for a maximum of five years.
See the Form 2441 Instructions and Schedule SE Instructions.
H&R Block Info
Originally published in the 10/23/19 edition of TAX in the News
Legal & IRS Information
IRS Publications
Pub. 503, Child and Dependent Care Expenses
IRS Forms/Instructions
Schedule SE (Form 1040) Instructions
Form 2441 Instructions
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