Paul and Karen are married, and both are employed (Paul earns $44,000 and Karen
ID: 2486037 • Letter: P
Question
Paul and Karen are married, and both are employed (Paul earns $44,000 and Karen earns $9,000 during 2014). Paul and Karen have two dependent children, both under the age of 13. So that they can work, Paul and Karen pay $3,800 to various unrelated parties to care for their children while they are working. Assuming that Paul and Karen file a joint return, what, if any, is their tax credit for child and dependent care expenses?
[Additional Information: Assume the applicable percentage for AGI $53,000 is 20%.]
1. Determine the child and dependent care credit for Paul and Karen.
2. Assume that Paul and Karen were reimbursed $1,800 by their employer under a qualified dependent care assistance program. Determine the child and dependent care credit for Paul and Karen.
Explanation / Answer
Answer:1 Take the tax credit percent found on page 13-23 multiply it by what they spent on childcare
20% x 3800= $760
Answer:2 20% *3800=$760 because
The maximum amount of qualifying expenses is limited to $6,000 for two or more children. But, the amount should be reduced by the $1,800 that received from her employer. So the total expenses are $4,200. Because their AGI was over $43,000, Paul and Karen are entitled to a credit equal to 20% of their expenses, or $840. ($4,200 x .20 = $840)i.e $760