Publication 503 - Child And Dependent Care Expenses

earnings from self-employment. A net loss from self-em-

What is not earned income? Earned income does not

ployment reduces earned income. Earned income also

include pensions or annuities, social security payments,

includes strike benefits and any disability pay you report as

workers’ compensation, interest, dividends, or unemploy-

wages.

ment compensation. It also does not include scholarship or

fellowship grants, except amounts paid to you (and re-

Nontaxable employee compensation not included.

ported on Form W –2) for teaching, research, or other

When figuring your earned income for the child and depen-

services.

dent care credit, do not count nontaxable employee com-

pensation such as meals and lodging furnished for the

Rule for student-spouse or spouse not able to care for

convenience of the employer, voluntary salary deferrals,

self. Your spouse is treated as having earned income for

military basic quarters and subsistence allowances and

any month that he or she is:

in-kind quarters and subsistence, and military pay earned

in a combat zone.

1) A full-time student, or

2) Physically or mentally not able to care for himself or

Members of certain religious faiths opposed to social

herself.

security. This section is for persons who are members of

certain religious faiths that are opposed to participation in

Figure the earned income of the nonworking spouse,

Social Security Act programs and have an IRS-approved

described under (1) or (2) above, as shown under Earned

form that exempts certain income from social security and

Income Limit under How To Figure the Credit, later.

Medicare taxes. These forms are:

This rule applies to only one spouse for any one month.

•

If, in the same month, both you and your spouse do not

Form 4361, Application for Exemption From

work and are either full-time students or physically or

Self-Employment Tax for Use by Ministers, Members

mentally not able to care for yourselves, only one of you

of Religious Orders and Christian Science Practition-

can be treated as having earned income in that month.

ers,

•

Full-time student. You are a full-time student if you are

Form 4029, Application for Exemption From Social

enrolled at and attend a school for the number of hours or

Security and Medicare Taxes and Waiver of Bene-

classes that the school considers full time. You must have

fits, for use by members of recognized religious

been a student for some part of each of 5 calendar months

groups.

during the year. (The months need not be consecutive.) If

you attend school only at night, you are not a full-time

Each form is discussed in this section in terms of what is

student. However, as part of your full-time course of study,

or is not earned income for purposes of the child and

you may attend some night classes.

dependent care credit. For information on the use of these

forms, see Publication 517, Social Security and Other

School. The term “school” includes elementary

Information for Members of the Clergy and Religious Work-

schools, junior and senior high schools, colleges, universi-

ers.

ties, and technical, trade, and mechanical schools. It does

not include on-the-job training courses, correspondence

Form 4361. Whether or not you have an approved

schools, and night schools.

Form 4361, amounts you received for performing ministe-

rial duties as an employee are earned income. This in-

Work-Related Expense Test

cludes wages, salaries, tips, and other employee

compensation (but does not include any employee com-

pensation that is nontaxable, such as a housing allow-

Child and dependent care expenses must be work related

ance).

to qualify for the credit. Expenses are considered work

related only if both of the following are true.

However, amounts you received for ministerial duties,

but not as an employee, are not net earnings from

•

They allow you (and your spouse if you are married)

self-employment for purposes of the child and dependent

to work or look for work.

care credit. Examples include fees for performing mar-

•

riages and honoraria for delivering speeches. Any income

They are for a qualifying person’s care.

or loss from these activities is not taken into account in

figuring earned income.

Working or Looking for Work

Any amount you received for work that is not related to

your ministerial duties is earned income.

To be work related, your expenses must allow you to work

or look for work. If you are married, generally both you and

Form 4029. Whether or not you have an approved

your spouse must work or look for work. Your spouse is

Form 4029, all wages, salaries, tips, and other employee

treated as working during any month he or she is a full-time

compensation are earned income. However, any em-

student or is physically or mentally not able to care for

ployee compensation that is nontaxable is not considered

himself or herself.

earned income.

Your work can be for others or in your own business or

In addition, amounts you received as a self-employed

partnership. It can be either full time or part time.

individual are not net earnings from self-employment for

purposes of the child and dependent care credit, and are

Work also includes actively looking for work. However, if

not taken into account in figuring earned income.

you do not find a job and have no earned income for the

Page 7

Publication 503 - Child And Dependent Care Expenses - 2002 Page 7

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