Question

Suppose that this year, Meredith paid a neighbor $5,366 to care for her two children, so Meredith could work. Assume Meredith’s AGI is 17,349 what is Meredith’s child care credit? Please explain how you got each number in your solution and/or where the number comes from.

Answer 1

As per IRS ,inorder to avail child and dependant care tax credit, you should comply the following requirements:

• The care must be for a Qualifying individual( here qualifying individual is the qualifying child under the age of 13 and is dependant)
• you should have earned ncome
• you must pay the care expense so that you can work or look for work
• if you are married you should file a joint return
• you must identify the care provider on your tax return

On satisfying all of the above , the child care credit that can be availed is :

20% - 35% (rate will be selected based on your AGI) of care expenses upto:

• $3,000 for a single qualifying child
• $6,000 for two or more childrens

Here Meredith is having two children and an AGI of $ 17,349

The applicable rate is 33% for income falling in the range ($17,000 - $19,000) and can claim credit upto a maximum of $6,000

{For the rate chart ,please refer Line 8 of FORM 2441}

So the Maximum child care credit will be 33% of (lower of $6,000 or actually incurred)

Actual expense incurred = $5,366

Child care credit = 33% * 5,366

= 1770.78