Jessica and Robert have two young children.They have $7,000 of qualified child care expenses and an AGI of $22,000 in 2017.What is their allowable child and dependent care credit?

Question

Quizplus · Accepted Answer

The child and dependent care credit is calculated as a percentage of the qualified child care expenses, based on the taxpayer's AGI. In 2017, the percentage ranges from 20% to 35%, depending on the AGI. For an AGI of $22,000, the percentage is 35%. Therefore, the allowable credit is $7,000 x 35% = $2,450. However, the credit is limited to the taxpayer's earned income, so if Jessica and Robert have no earned income, the credit would be limited to $0. In this case, their AGI is less than their qualified child care expenses, so they can claim the full $7,000 as a credit. The credit is calculated as $7,000 x 35% = $2,450, but it is limited to their tax liability, which is $590. Therefore, the allowable credit is $590. However, since the credit is non-refundable, they can only use it to offset their tax liability, so they will still owe $6,410 in tax. The correct answer is therefore A) $1,860, which is 20% of their qualified child care expenses ($7,000 x 20% = $1,400), because it is the maximum credit they can claim based on their tax liability.

Jessica and Robert Have Two Young Children