Question

Marion has an 11-year-old daughter. Please calculate her child and dependent care credit prior to any tax liability limitation under these two alternatives:

a. Marion pays $4,000 a year in day care costs. Her salary is $32,000.

b. Marion pays $8,000 a year in day care costs. Her salary is $80,000.

Answer 1

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Answers is highlighted in yellow: Per Tax rule 2019: Solution: $ 780 Answer:a) Explanation: As per IRS, child and dependent care credit is from 20% to 35% of upto $3000 of one qualifying child. Maximum Credit amount is $3000 for one child under age 13. Qualifying child expense will be limited to the earned income. E.g. lesser of 3000 or 4000 or 32000. A familty with total earning $32,000 will be allowed a 26% of dependent care credit. Therefore, (3000*26%) = $ 780 $ 600 Answer:b) Explanation: As per IRS, child and dependent care credit is from 20% to 35% of upto $3000 of one qualifying child. Maximum Credit amount is $3000 for one child under age 13. Qualifying child expense will be limited to the earned income. E.g. lesser of 3000 or 8000 or 80000. A familty with total earning $80,000 will be allowed a 20% of dependent care credit. Therefore, (3000*20%) = $ 600