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Return Information Notice - Code CE

We disallowed your Child and Dependent Care Expenses Credit. To claim the credit you must have earned income. The income you reported on your return does not meet the definition of earned income. Earned income includes wages, salaries, tips, other employee compensation, and net earnings from self-employment. For additional information, please refer to form FTB 3506 instructions.

Why did I receive this notice code?

We disallowed your credit because we could not verify that you or your spouse (if married filing jointly) had enough earned income for the amount of credit claimed.

You and your spouse (if married filing jointly) must have earned income to qualify for the credit. The credit is computed on the lesser of:

  • Your earned income.
  • Your spouse's earned income (if married filing jointly).
  • The qualified dependent-care expenses (but, not more than $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals).

To verify your earned income, we checked the information provided by other tax agencies and your employer. We also looked on your return for the following documents:

  • Form W-2, Wage and Tax Statement.
  • Form 1099-MISC, Miscellaneous Income.
  • Federal Schedule C, Profit or Loss from business.
  • Federal Schedule E, Supplemental Income and Loss.
  • Federal Schedule F, Profit or Loss from Farming.

Either the above documents were not attached to your return, or the documents attached did not show enough earned income for the amount of credit you claimed.

What do I need to do?

If you agree with our revisions, you do not need to contact us. Please update your records. If your notice shows a revised balance due, please pay the amount due.

If you do not agree with our revisions, or you think we disallowed your credit in error, follow the instructions in the table, or you can contact us.

General Information about your notice.

Earned Income
Includes: Does Not Include:
  • Wages
  • Salaries
  • Tips
  • Other employee compensation
  • Net earnings from self-employment. However, a net loss from self-employment reduces earned income

Earned income also includes certain nontaxable income such as:

  • Parsonage allowances for 2000 and 2001
  • Meals and lodging furnished for the convenience of the employer
  • Voluntary salary deferrals
  • Military
    • Basic quarter
    • Subsistence allowances
    • In-kind quarter/subsistence
    • Pay earned in a combat zone
  • Pensions
  • Annuities
  • Social security payments
  • Worker's compensation payments
  • Interest
  • Dividends
  • Unemployment compensation
  • Public assistance benefits
  • Parsonage allowances for 2002 and after

You Your Spouse (if married filing jointly)
Send us the following documents showing your earned income:
  • Forms W-2, Wage and Tax Statement
  • Federal Schedule C, Profit or Loss from Business
  • Federal Schedule E, Supplemental Income or Loss

    Note: If you have more than one source of income on Schedule E, indicate which were from self-employment.

  • Federal Schedule F, Profit or Loss from Farming
  • Form 1099-MISC, Miscellaneous Income

Note: Generally, income reported on Form 1099 is not earned income. Give us an explanation of the income you received.

If your spouse had earned income, send us the following documents showing his or her earned income:
  • Forms W-2, Wage and Tax Statement.
  • Federal Schedule C, Profit or Loss from Business
  • Federal Schedule E, Supplemental Income or Loss

    Note: If you have more than one source of income on Schedule E, indicate which were from self-employment.

  • Federal Schedule F, Profit or Loss from Farming
  • Form 1099-MISC, Miscellaneous Income

Note: Generally, income reported on Form 1099 is not earned income. Give us an explanation of the income you received.

OR

If your spouse was a full-time student, send us BOTH of the following:

  • The dates your spouse was a full-time student.
  • A transcript or other document from the school showing full-time attendance.

OR

If your spouse was physically or mentally incapable of self-care, send us:

  • A doctor's statement of your spouse's incapacity and the corresponding dates.