Trudy is Jocelyn's friend.Trudy looks after Jocelyn's four-year-old son during the day so Jocelyn can go to work.During the year,Jocelyn paid Trudy $4,000 to care for her son.What is the amount of Jocelyn's child and dependent care credit if her AGI for the year was $30,000? (Exhibit 8-9 in the text)

Question

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The child and dependent care credit is a tax credit for expenses paid for the care of a qualifying child or dependent so that the taxpayer can work or look for work. The maximum amount of the credit is $3,000 for one qualifying child or dependent, and $6,000 for two or more qualifying children or dependents. The credit is phased out for taxpayers with AGIs above certain levels. For taxpayers with AGIs of $30,000 or less, the credit is equal to 35% of eligible expenses. For taxpayers with AGIs between $30,000 and $43,000, the credit is reduced by 1 percentage point for each $2,000 (or fraction thereof) of AGI above $30,000. For taxpayers with AGIs above $43,000, the credit is not available. In this case, Jocelyn's AGI is $30,000, so she is eligible for the full 35% credit. Her eligible expenses are $4,000, so her child and dependent care credit is $4,000 x 0.35 = $1,400. However, the maximum credit for one qualifying child or dependent is $3,000, so Jocelyn's credit is limited to $3,000.

Trudy Is Jocelyn's Friend