Question

Tim and Martha paid $6.900 in qualified employment-related expenses for their three young children, who live with them in their household, Martha received $2,100 of dependent care assistance from her employer, which was properly excluded from gross income. The couple had $42,100 of AGI earned equally. Use Child and Dependent Care Credit AGI schedule a. What amount of child and dependent care tax credit can they claim on their Form 1040? b. How would your answer differ (if at all) if the couple had AGI of $37,000 that was earned entirely by Tim? a Child and dependent care tax credit b. Child and dependent care tax credit 34 Adjusted Applicable Gross Income Percentage $15,000 or less 35% 15.001-17.000 17,001-19,000 33 19,001-21.000 21,001-23,000 23,001-25,000 25,001-27,000 27,001–29,000 29.001-31,000 31,001-33,000 33,001-35,000 35,001-37.000 37,001-39,000 39,001-41,000 41,001-43.000 43,001 or more

Answer 1

The amount of employment-related expenses is limited to $4,900 for two or more children. This amount must be reduced by the $2,100 that Martha received from her employer. Thus, their allowed expenses are $2,800. Since their AGI was below $43,000, Tim and Martha are entitled to a credit equal to 21% of their expenses, or $588.

If the couple had AGI of $37,000 earned by solely Tim, the credit would be zero. The credit is permitted if you have child care expenses incurred to be gainfully employed. Since Martha was not employed, no credit is permitted. Allowed expenses are limited to the earned income of the taxpayer or the taxpayer’s spouse, whichever is smaller.