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.
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Harry and Wilma may claim a credit for child and dependent care expenses of:

Quizplus · Accepted Answer

To calculate the credit for child and dependent care expenses, we start with the lower of earned income (in this case, $20,000) or the actual child care expenses ($8,000). This means the maximum credit they can claim is $1,200 (30% of $4,000 because they have two children). This credit is then reduced by a percentage based on their adjusted gross income (AGI) which, in this case, is $44,000. The credit is reduced by 20% of the amount by which AGI exceeds $15,000.

So, in this case, the credit is reduced by 20% of ($44,000 - $15,000) = $5,800. This means the actual credit they can claim is $1,200 - $1,160 (20% of $5,800) = $40.

Therefore, the total credit for child and dependent care expenses they can claim is $1,200 - $40 = $1,160.

Harry and Wilma Are Married and File a Joint Income