Harry and Wei are married and file a joint income tax return.On their tax return, they report $44,000 of adjusted gross income ($20,000 salary earned by Harry and $24,000 salary earned by Wei) and report two dependent children.During the year, they pay the following amounts to care for their four-year old son and six-year old daughter while they work. $$\begin{array} { l r }
\text { ABC Day Care Center } & \$ 3,200 \
\text { Blue Ridge Housekeeping Services } & 2,000 \
\text { Mindy Mason (Harry's mother) } & 1,000
\end{array}$$ Harry and Wei may claim a credit for child and dependent care expenses of:
A)$840.
B)$1,040.
C)$1,200.
D)$1,240.

Question

Harry and Wei are married and file a joint income tax return.On their tax return, they report $44,000 of adjusted gross income ($20,000 salary earned by Harry and $24,000 salary earned by Wei) and report two dependent children.During the year, they pay the following amounts to care for their four-year old son and six-year old daughter while they work. $$\begin{array} { l r } 
\text { ABC Day Care Center } & \$ 3,200 \
\text { Blue Ridge Housekeeping Services } & 2,000 \
\text { Mindy Mason (Harry's mother) } & 1,000
\end{array}$$ Harry and Wei may claim a credit for child and dependent care expenses of:
A)$840.
B)$1,040.
C)$1,200.
D)$1,240.

Quizplus · Accepted Answer

To calculate the credit, we first need to determine the lower of their income or the allowable limit. The limit is $3,000 for one child and $6,000 for two or more children. Since they have two children, their limit is $6,000. Their income of $44,000 is lower than this limit, so we can use the full limit to calculate their credit. The credit is calculated as a percentage of the allowable limit based on their income. Since they have an adjusted gross income of $44,000, their percentage is 20%. So, their credit is 20% of $6,000, which equals $1,200. Therefore, the best choice is C.

Harry and Wei Are Married and File a Joint Income