Question

T and S are married couple filing a joint return and claiming the standard deduction. During 2019, T earned salary of $32,800 at a full-time job and S earned salary of $2,700 at a part-time job. So that both spouses could work, the couple paid a total of $5,500 to a day care facility to care for their dependent child, C, who was age 3 at the end of the year. Determine the amount of the Child and Dependent Care Credit to which the couple is entitled for the year.

Multiple Choice

• $600

• $1320

• $648

• $720

• $2052

Answer 1

C) $ 720

The child and dependent care credit can be worth from 20% to 35% of some or all of the dependent care expenses paid.

If income is less than $ 15,000 person can be qualify for 35% credit. The percentage falls by 1% for every additional $ 2,000 of income until it reaches 20%

Here, total AGI of the couple = $ 32,800 + $ 2,700 = $ 35,500 which is more than $ 15,000. So, they will miss = [ $ 35,500 - $ 15,000] / $ 2,000 = 10.25 % that means 11% [ fractions not to be considered due to income slab change ]

So, they will get a credit = 35% - 11% = 24%

Actual expenses paid = $ 5,500

Maximum expenses to be consider for tax credit = $ 3,000 per child

So, net child and dependent care credit = $ 3,000 X 24% = $ 720