Harry is divorced with net income for tax purposes of $50,000. His 21 year old dependent daughter, Ann had net income for tax purposes of $15,000. During 2020 Harry paid a total of $2,500 for eligible medical expenses for Ann. Harry had no medical expenses of his own. Harry's medical expenses tax credit for 2020 is:

Question

Quizplus · Accepted Answer

The medical expenses tax credit is calculated as the lesser of 3% of the dependent's net income or the total eligible medical expenses paid. In this case, 3% of Ann's net income is $450, which is less than the $2,500 in eligible medical expenses paid. Therefore, the tax credit is $450. However, since Ann is a dependent, Harry can claim the credit on his tax return. Therefore, the credit reduces Harry's federal tax owing by $308.

Harry Is Divorced with Net Income for Tax Purposes of $50,000