Harry and Wilma 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 Wilma)and claim two exemptions for their dependent children.During the year,they pay the following amounts to care for their 4-year old son and 6-year old daughter while they work. Harry and Wilma may claim a credit for child and dependent care expenses of:

Question

Harry and Wilma 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 Wilma)and claim two exemptions for their dependent children.During the year,they pay the following amounts to care for their 4-year old son and 6-year old daughter while they work.  Harry and Wilma may claim a credit for child and dependent care expenses of:

Quizplus · Accepted Answer

The credit for child and dependent care expenses is calculated based on the lower of the earned income of either spouse, up to a maximum of $3,000 per dependent. In this case, the lower of Harry and Wilma's earned income is $20,000, so the maximum credit they can claim for each dependent is $2,400 ($3,000 x 0.8). Since they have two dependents, their maximum credit is $4,800. However, the credit is also limited to a percentage of their child care expenses, based on their income. For adjusted gross income of $44,000, the percentage is 20%, so their maximum credit is $960 ($4,800 x 0.2). Finally, they need to subtract the amount of their employer-provided dependent care benefits, which is $240 in this case, to get their final credit of $1,200 ($960 - $240).

Harry and Wilma Are Married and File a Joint Income