1. (8 POINTS) Sam and Jessica, who are married, paid $3,200 in daycare expenses
ID: 2518991 • Letter: 1
Question
1. (8 POINTS) Sam and Jessica, who are married, paid $3,200 in daycare expenses for their three-year-old daughter, and $4,000 in preschool expenses for their five-year old son, all so they both could work. Their AGI for the year was S65,300 (all earned equally by both parents) a) What is the maximum amount of Sam and Jessica's child and dependent care credit? b) If Sam had only $4,000 worth of earned income and Jessica earned the rest of the $65,300 of AGI, how would this change their credit amount, if at all?Explanation / Answer
EXPLANATION -- Under Child and Dependent Care Credit Scheme --
A credit for the costs of care for a qualifying individual to allow you to work or look for work. The dollar limit on the amount of the expenses you can use to figure the credit is $3,000 for the care of one qualifying individual or $6,000 for two or more qualifying individuals. The amount of your credit is between 20 and 35 percent of your allowable expenses. The percentage you use depends on the amount of your adjusted gross income.
The Child and Dependent Care Credit can be worth from 20% to 35% of some or all of the dependent care expenses you paid. The percentage you use depends on your income. If your income is below $15,000, you will qualify for the full 35%. The percentage falls by 1% for every additional $2,000 of income until it reaches 20% (for an income of $43,000 or more)
Case A -- Income of both parents --- 65300/2 = 32650 So they are eligible for 26% deduction as per IRS rules maximum upto 6000$ as there are 2 dependents
Total allowable care credit = 6000$
Case B -- now income cahnges Sam -- 4000$ == 35% credit allowed
Jessica --65300$ == 20% allowed
Therefore allowable credit == 1400 + 3000 == 4400$
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