Question

Kevin and Jenny, who are both working full-time, have three children all under the age of ten. The two youngest children, who are three and five years old, attended pre-school for a total cost of $3000. Ervin, who is nine, attended daycare after school at a cost of $2000. Jenny has earned income of $15,000 and Kevin earns $14,000. What amount of childcare expenses should be used to determine the child and dependent care credit?

Answer 1

Expenses of children below 13 years which includes day care, nursery or home of baby sitter is eligible expenses subject to 3000 for 1 child and 6000 for 2 or more child.

Credit base is calculated as follows:

Credit Base = Lesser of Actual Qualified Expenses and ($3,000 for 1 Dependent or $6,000 for 2 or more – Tax-Free Employer Reimbursements)

So present case total expenses are 3000+2000 = 5000 or 6000, lesser is 5000.

So eligible expenses is $5000, subject to employer reimbursement which is 0.