Question

Harry and Wei 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 Wei) and report two dependent children. During the year, they pay the following amounts to care for their four-year old son and six-year old daughter while they work.
ABC Day Care Center $3,200
Blue Ridge Housekeeping Services 2,000
Mrs. Mason (Harry’s mother) 1,000
Required:
1. Harry and Wei may claim a credit for child and dependent care expenses of__________.

Answer 1

Answer:

$1,200

Explanation:

Based on the U.S. Internal Revenue Service, Harry and Wei can claim a maximum credit of 20% of the $6000 which is a limit of dependent care expenses for 2 or more dependents as imposed by the U.S IRS.

Throughout the year, they pay $3,200 for ABC Day Care Center, $2,000 for Blue Ridge Housekeeping Services, and $1,000 to Mrs. Mason (Harry's mother). Which has a total of $6,200.

Because they cannot claim 20 percent of all child care amount which is $6,200, they can only claim 20 percent of $6,000.

Hence, Harry and Wei can claim:

$6,000 × 20% = $1,200

Therefore Harry and Wei may claim a credit for child and dependent care expenses of $1,200.