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 theywork.

ABC Day Care Center	$5,200
Mrs. Mason (Harry’s mother)	1,000

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

a. $840.

b. $1,040.

c. $1,200.

d. $1,240.

Answer 1

According to Internal Revenue Service (IRS) the maximum credit that can be claimed for dependent care expenses is 20% of qualified expenses if the adjusted gross income is above $43,000.

Further, the maximum limit for expenses to be claimed is $3,000 for 1 qualified person and $6,000 for two or more qualified persons.

In the given case, Harry and Wilma have reported gross income of $44,000 (which exceeds the limit of $43,000), and thus eligible for 20% credit of their expenses on dependent persons, Further they have expended $5,200 for their dependent children and $1,000 on Harry's Mother, which leads to total expenses of $6,200. But the maximum limit for dependent care expenses is $6,000 in case of 2 or more dependent person,

So, Harry and Wilma can claim $1,200 (i.e.$6,000 x 20%) for child and dependent care expenses.

Answer is Option (c ) : $1,200