Jessica and Robert have two young children. They have $7,000 of qualified child care expenses and an AGI of $22,000 in 2015. What is their allowable child and dependent care credit?

Question

Quizplus · Accepted Answer

The child and dependent care credit is calculated as a percentage of the qualified child care expenses, based on the taxpayer's AGI. For an AGI of $22,000, the credit percentage is 35%. Therefore, the allowable credit is:

$7,000 x 35% = $2,450

However, the maximum amount of expenses that can be used to calculate the credit is $3,000 for one child or $6,000 for two or more children. In this case, since they have two children, the maximum amount of expenses that can be used is $6,000. Therefore, their allowable credit is:

$6,000 x 35% = $2,100

However, the credit is also limited to the amount of tax liability incurred by the taxpayer. Since their tax liability is less than the allowable credit, their credit is limited to their tax liability. Therefore, their allowable child and dependent care credit is:

$2,100 (allowable credit) - $240 (tax liability) = $1,860.

The best choice is A.

Jessica and Robert Have Two Young Children