Frank and Mary Wood have 2 children, Becky, age 10, and Matt, age 14. The Woods incur expenses of $4,000 for after school-care for each child. Their only income is from wages. Frank's wages are $60,000, and Mary's wages are $2,500. What amount of Child and Dependent Care Credit may the Woods claim on their joint tax return?
a. $1,600
b. $800
c. $500
d. $1,200
Explanation
Choice "c" is correct. First of all we need to determine the eligible expenses. Only expenses for Becky will qualify because Matt is not under 13 years of age. So of the $8,000 spent, only $4,000 will qualify. The maximum eligible for 1 dependent, though, is $3,000. Then it is further limited because it is limited to the lowest earned income of either spouse. That would be Mary's $2,500. Due to their combined income level, they are in the 20% credit range. The credit is 20% of $2,500, or $500.
Choices "a", "b", and "d" are incorrect, per the above explanation.
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