Understanding the child and dependent care credit is essential for ensuring your clients maximize their tax savings while staying compliant with IRS rules. You need to be equipped with this knowledge to accurately determine eligibility based on qualifying expenses, income and dependents – helping you file error-free returns and provide expert guidance.

Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers.

Q: Can the caregiver be a grandparent (e.g., not an official day care or preschool)?

A: Facts and circumstances will dictate. The expenses must be paid to someone whom the taxpayer (and spouse, if filing jointly) cannot claim as a dependent.

Q: If the parent works night shifts, can overnight summer camps count as dependent care?

A: The cost of day camps may be considered employment-related expenses. However, the cost of overnight camps does not qualify.

Q: Can a payment made to an ex-spouse to pay for day care expenses count as payment to a provider?

A: Not if the ex-spouse is the qualifying person’s parent. You can count some work-related payments made to other relatives, even if they live in your house. However, do not count any amounts paid to:

• A person you (or your spouse, in the case of a joint return) can claim as a dependent
• Your child who was under age 19 at the end of the year, even if the child isn’t your dependent
• A person who was your spouse at any time during the year, or
• The parent of your qualifying person if your qualifying person is also your child and under age 13

To learn more about child and dependent care credit benefits, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.

Question: Upon reviewing Nathan and Tabitha’s joint tax return, you notice the premium tax credit (PTC) they typically qualify for has not been calculated by the software as expected. The couple are budding entrepreneurs and purchased health insurance through a federally facilitated health insurance marketplace. They did not receive any advance premium tax credit (APTC) payments throughout the year. After verifying that the pair otherwise qualifies for the PTC, you rescan the Form 1095-A, Health Insurance Marketplace Statement, they presented and observe that Form 1095-A, Part III, Column B, is blank. Could this be why the software isn’t generating the PTC, and, if so, how can this be fixed?

Answer: Yes, the second lowest-cost silver plan (SLCSP) is a key component in calculating the PTC, along with income and family size. When APTC is not paid for coverage, the SLCSP premium on Form 1095-A, Part III, Column B, may be incorrect, reported as -0-, or left blank, as is the case with Nathan and Tabitha’s form. The taxpayers are directed not to request a corrected form. Instead, the health coverage tax lookup tool located at https://www.healthcare.gov/tax-tool/#/ will determine their correct SLCSP premium. This figure must then be manually entered/adjusted on Form 1095-A, Part III, Column B. You easily assist them with this process in the office, and after doing so, the PTC is now properly appearing on their return.

Having the right credentials is more important than ever. The enrolled agent (EA) designation is the gold standard for tax professionals who want to confidently represent clients before the Internal Revenue Service (IRS) and enhance their careers by expanding their business services.

IRS enforcement trends: audits, liens and levies

The Inflation Reduction Act provided the IRS with funds to enhance its enforcement tools, using data analytics and artificial intelligence to identify discrepancies and potential fraud. These developments mean that more taxpayers, both individuals and businesses, could face audits, collection actions or legal proceedings, ultimately leading to a need for skilled representation. The IRS has increased their audits and examinations using a variety of methods, some are done automatically. For those that require representation, clients need the right advocate.

So, if a potential client gets a notice, will you be ready to help — or have to refer them elsewhere?

The changing IRS landscape: why representation skills matter

Unlike routine tax preparation, representation requires an in-depth knowledge of IRS procedures and the ability to communicate effectively with IRS agents. EAs can navigate these challenges and advocate on their client’s behalf by:

• Understanding the nuances of tax law
• Responding to IRS notice
• Negotiating settlements
• Defending taxpayers in audits or appeals
• Challenge incorrect assessments
• Review and correct missed deductions

Why the EA credential matters

One of the most significant advantages of becoming an enrolled agent is representing taxpayers before the IRS. If your client receives an IRS notice, you can explain what the notice means and craft a response for them within the required time constraints. If an audit is required, enrolled agents can assist their clients review, prepare and gather documents. Unlike uncredentialed tax preparers, who can only assist with tax returns, EAs have unlimited representation rights without restriction and can represent their clients in any state

Prospective EAs must pass a rigorous three-part exam covering individual and business tax law, representation and ethics before the IRS awards the designation. Unlike CPAs and attorneys who are licensed at the state level and may not always specialize in taxation, EAs focus exclusively on federal tax matters.

The bottom line

As the IRS continues to audit individuals and businesses, tax professionals must be prepared to offer more than just tax preparation services. Earning an EA designation can give tax professionals an additional edge in serving their clients. Level up today by learning how to become an EA with a NATP membership.

Want to grow your skills — and your tax business?

We’re building a free library of guides, blogs, and tools to help you become an enrolled agent. Drop your email below, and we’ll send new resources as they’re released, including immediate access to our EA Exam Guide. 👇