Robert and Mary file a joint tax return for 2015 with adjusted gross income of $34,000. Robert and Mary earned income of $20,000 and $14,000, respectively, during 2015. In order for Mary to be gainfully employed, they pay the following child care expenses for their 4-year-old son, John: What is the amount of the child and dependent care credit they should report on their tax return for 2015?

Question

Quizplus · Accepted Answer

The child and dependent care credit is computed based on the lesser of the qualifying expenses paid or the earned income of the taxpayer with the lower amount. In this case, Mary's earned income is the lesser amount, which is $14,000.

The maximum amount of qualifying expenses that can be considered is $3,000 for one child. However, since Robert and Mary have two children, John and his sister, and both of them are eligible for child care, they can claim up to $6,000 of qualifying expenses.

They can claim a credit equal to a percentage of those qualifying expenses, based on their adjusted gross income. Since their AGI is $34,000, they are eligible for a credit of 20% of the qualifying expenses.

Therefore, the amount of the child and dependent care credit they should report on their tax return for 2015 is:

$6,000 (qualifying expenses) x 20% (applicable percentage) = $1,200

However, the credit is further limited to the amount of tax liability they have. If their tax liability is less than $1,200, the credit will be limited to the amount of the liability.

Since we do not know their tax liability, we cannot say for sure what the final credit amount will be. However, we can eliminate answer choices A and B because they are lower than the maximum credit amount of $1,200. Answer choice D is higher than the maximum credit amount and can be eliminated as well. Therefore, the best choice is answer choice C, $675, which is within the possible range of the credit amount they can claim.

Robert and Mary File a Joint Tax Return for 2015