Current through Register Vol. 63, No. 9, September 1, 2024
(1) As used in this rule, references to the
Internal Revenue Code (IRC) mean the IRC as in effect on the date specified in
ORS 315.004.
(2) Definitions for the purposes of ORS
315.264 and this rule:
(a) "Employment-related expenses" means
employment-related expenses as defined in IRC section 21, without regard to the
limitation in IRC section 21(c).
(b) "Earned income" means earned income as
used for the purposes of IRC section 21.
(c) "Qualifying individual" means a
qualifying individual as defined in IRC section 21.
(d) "Federal poverty level" means the federal
poverty level for the same tax year as determined by the federal Department of
Health and Human Services.
(e)
"Dependent care benefits" means:
(A) Expenses
paid with amounts excluded from income as dependent care benefits under IRC
section 129;
(B) Expenses paid
from dependent care benefits provided as part of a cafeteria plan under IRC
section 125; or
(C) Reimbursement
of expenses as part of a flexible spending arrangement under IRC section
125.
(f) "Household
size" generally means the number of individuals, not to exceed eight, who are
related by birth, marriage, or adoption, living in the home, and are allowed as
exemptions on the taxpayer's federal return. There are exceptions for disabled
qualifying individuals and children whose parents are divorced, legally
separated, or permanently living apart. See section (8) of this rule for those
household exceptions.
Example 1. Adam and
Maggie are married and have one qualifying individual. Maggie is a full-time
student for 12 months in 2016. They paid $4,000 in employment-related expenses.
Their adjusted gross income is $39,000, which is Adam's wages. Maggie has no
earned income. Because Maggie was a full-time student for 12 months of the
year, she is considered to have $3,000 ($250 x 12) in attributable earned
income. Their credit amount will be a percentage of $3,000, which is the least
of their employment-related expenses ($4,000), the expense limitation ($12,000
for one qualifying individual), his earned income ($39,000), or her earned
income ($3,000).
Example 2: Sophia
and Tyler live together but are not married; they file separate tax returns.
They are the parents of two children, Ken and Leah. Sophia and Tyler provide
equal support to the children. However, because Sophia's adjusted gross income
is higher than Tyler's, neither Ken nor Leah is a qualifying child of Tyler
unless Sophia releases the exemption for that child to Tyler. Sophia releases
the exemption for Ken to Tyler, but not for Leah. Sophia claims Leah and has a
household size of two. Tyler claims Ken and has a household size of two. Each
parent may only claim one dependent in their household size. Sophia is not able
to claim Ken and Tyler is not able to claim Leah in the household size because
the other parent is already claiming that child.
Example 3: Marcus and Erin are married and
have three children and also support Marcus's parents who do not live with
Marcus and Erin in their home. Because they meet the federal tests for claiming
individuals not living with them, their federal return allows seven exemptions.
Marcus and Erin cannot increase their household size by the people they claim
as dependents on their federal return that do not live with them. Their
household size for purposes of the Working Family Household and Dependent Care
Credit is five.
(3) To claim the credit, the taxpayer must
provide all information requested on the form prescribed by the department and
file the form with the tax return. Failure to file the completed form with the
department may result in denial of the Working Family Household and Dependent
Care Credit.
(4) The amount of
employment-related expenses that may be taken into account for any taxable year
cannot exceed -
(a) $12,000 if there is one
qualifying individual with respect to the taxpayer for the taxable year, or
(b) $24,000 if there are two or
more qualifying individuals with respect to the taxpayer for the taxable
year.
(5) The amount
determined under section (4)(a) or (4)(b) (whichever is applicable) is reduced
by the total amount of dependent care benefits.
Example
4: Jenny has one qualifying individual; therefore, the $12,000
dependent care expense limitation applies. She paid a total of $13,000 in
employment-related expenses in 2017, of which $5,000 was used in a flexible
spending arrangement. Her employer reports $5,000 of dependent care benefits in
box 10 of her W-2. Jenny's limitation on dependent care expenses is reduced to
$7,000 (the $12,000 limitation minus the $5,000 dependent care
benefits).
(6)
Employment-related expenses must be paid by the taxpayer claiming the credit.
Payments made by an entity or individual other than the taxpayer claiming the
credit, including federal or state assistance agencies (such as the Department
of Human Services or the Employment-Related Day Care program) are not payments
made by the taxpayer.
Example 5. Leslie works
full time and qualifies for state assistance in paying his child care expenses.
The child care provider charges Leslie $600 per month to care for his two
children ($7,200 per year). Of the $600 per month, the state pays $450 and
Leslie has a copay of $150. Leslie cannot claim the entire $7,200 because he
did not pay it. He can only claim $1,800 ($150 x 12), the amount he actually
paid.
(7) If medical
expenses are claimed as qualified expenses for the credit and as a deduction,
the amount of medical expenses claimed as both shall be added to the taxable
income for Oregon tax purposes.
(8)
Household size exceptions:
(a) Disabled
qualifying individuals can be included in the household size calculation even
if they are not related to the taxpayer by birth, marriage, or adoption. An
otherwise qualifying individual can be included in the household size if the
taxpayer is not able to claim the individual as a dependent on their return for
one of the following reasons:
(A) The
individual had gross income equal to or more than the federal exemption amount
for the corresponding tax year;
(B)
The individual filed a joint return; or
(C) The taxpayer (or spouse if filing
jointly) could be claimed as a dependent on another taxpayer's
return.
Example 6. Carey's disabled
parents live with her. They would otherwise qualify to be claimed as Carey's
dependents on her return, except that they are married and file their own joint
return. For this reason, Carey does not claim them on her return. Her parents
qualify as her qualifying individuals for the credit. Her household size for
the purpose of this credit is three.
(b) For taxpayers who are divorced, legally
separated, or permanently living apart, an otherwise qualifying individual
cannot be counted in the household size on more than one tax return.
Example 7. Branden and Shannon are divorced
with two children, Dustin and Natalie. Dustin lives with Branden and Natalie
lives with Shannon. Each parent pays the child care expenses for the child that
lives with that parent. Shannon releases the dependent exemption for Natalie to
Branden under IRC section 152(e). For purposes of the Working Family Household
and Dependent Care credit, Natalie is counted in Shannon's household size and
Dustin is counted in Branden's household size. Branden and Shannon each have a
household size of two for purposes of this credit. Branden claims the
employment-related expenses he paid for Dustin and Shannon claims the
employment-related expenses she paid for Natalie on their
returns.
Publications: Contact the Oregon Department of Revenue for
information about how to obtain a copy of the publication referred to or
incorporated by reference in this rule pursuant to ORS
183.360(2) and
183.355(1)(b).
Statutory/Other Authority: ORS
305.100 &
315.264
Statutes/Other Implemented: ORS
315.264
