Question

In each of the following independent situations, determine the amount of the child and dependent care tax credit. (Assume that both taxpayers are employed and the year is 2017).

Brad and Bonnie are married and file a joint return, with earned income of $40,000 and $14,000, respectively. Their combined AGI is $52,000. They have two children, ages 10 and 12, and employ a live-in nanny at an annual cost of $9,000.

Assume the same facts as in Part a, except that Brad and Bonnie employ Bonnie’s mother, who is not their dependent, as the live-in nanny.

Bruce is divorced and has two children, ages 10 and 16. He has AGI and earned income of $35,000. Bruce incurs qualifying child care expenses of $8,000 during the year, incurred equally for both children. Bruce’s employer maintains an employee dependent care assistance program. $1,000 was paid to Bruce from this program and excluded from Bruce’s gross income.

Buddy and Candice are married and file a joint return. Their combined AGI is $50,000. Buddy earns $46,000, and Candice’s salary from a part-time job is $4,000. They incur $5,000 of qualifying child care expenses for a day-care facility for their two children, ages 2 and 4.

Ben and Bunny are married and file a joint return. Their AGI is $75,000, all earned by Bunny. Ben was a full-time student for two semesters (10 months) at State University during the year. They incur $7,000 of qualifying child care expenses for their two children, ages 6 and 4.

Answer 1

Child and Dependent Care Tax Credit(CDCTC): Child and Dependent Tax credit is an non refundable tax credit prvided for the tax payers who pay the child and dependednt care expenses while you are earning or on work.

Spouse is treated as having earning income if he or she is

a) A full time student

b)physically or mentally not able to take care

To be eligible for the child tax credit , the child should be uder the age of 13 when the care is provided.

The child should have lived with you for more than half of the year.

The allowable tax creit should be on upto $3,000 for one child and $6,000 for two child.

The % will range from 20% to 35% depending on the income. IT means below $15,000, 35 % , 1% will be reduced for additionla $2000 of income.and over and above $43,000 it is 20%

1a) Brad and Bonnie are married and file a joint return, with earned income of $40,000 and $14,000, respectively. Their combined AGI is $52,000. They have two children, ages 10 and 12, and employ a live-in nanny at an annual cost of $9,000.

In the given case Brad and Bonnie have 2 children ages 10, 12 . They are eligible for Child Nad dependent tax credit as their ages are below 13 at the end of the year.

Though the eligible costs are $9000, they can claim only $3000 per child i.e, $6000 irrespective of the cost incurred $9000

Their Combined AGI is $52,000 so they can have a credit of 20% on $6000 which is $1,200.

Hence, the child and Dependent tax credit for Brad and Bonnie is $1200.

1b) Assume the same facts as in Part a, except that Brad and Bonnie employ Bonnie’s mother, who is not their dependent, as the live-in nanny.

If the care taker is Bonnie's mother then they are not eligible for Child and Dependent tax credit because the Care taker should not be an immediate Family member. While filing the tax resturn they have to give the details of the care takersuch as name, social security number etc.

So,in this situation they will not be eligible for any child and dependent tax credit.

2) Bruce is divorced and has two children, ages 10 and 16. He has AGI and earned income of $35,000. Bruce incurs qualifying child care expenses of $8,000 during the year, incurred equally for both children. Bruce’s employer maintains an employee dependent care assistance program. $1,000 was paid to Bruce from this program and excluded from Bruce’s gross income.

Bruce has two children aged 10 and 16. As the age limit for CDCTC is below 13, only one child is eigible for the amount of upto $3000 though the child care expenses for one qualifying child is $4000

AGI of Bruce is $35,000 , so the % applicable is 25% when cslculated 1% of deduction at an additional $2000 earned from $15,0000 at 35%.

But Bruce's employer maintains an employee dependednt acre assistance program and she paid $1000.

So $1000 is to be reduced from $3000. $3000 - $1000 = $2000

CDCTC = $2000 *25% = $500

So , the Child and Dependent TAx Credit for Brue is $500.

3)Buddy and Candice are married and file a joint return. Their combined AGI is $50,000. Buddy earns $46,000, and Candice’s salary from a part-time job is $4,000. They incur $5,000 of qualifying child care expenses for a day-care facility for their two children, ages 2 and 4.

Buddy and Candice have 2 child aged 2 and 4 whose age is below 13 and are eligible for CDCTC upto $6000 ($3000 each) though their expenses are $5000

Their AGI is $50000 which is more than $43000 and the % applicable is 20%.

CDCTC = $6000 *20% = $1200

Hence, Child and Dependednt Tax credit for Buddy and Candice is $1200

4) Ben and Bunny are married and file a joint return. Their AGI is $75,000, all earned by Bunny. Ben was a full-time student for two semesters (10 months) at State University during the year. They incur $7,000 of qualifying child care expenses for their two children, ages 6 and 4.

Given Ben and Bunney have 2 child aged 6 and 4 below the age limit of 13 and hence the are eligible for upto $3000 * 2 = $6000 though their qualifying expenses are $7,000

Ben is a full time student for two semesters (10 months which is greater than the limit of 5 months) at state uiversity during the year , hence considered as earning and not in a position to take care of the children. So eligible for CDCTC.

Their AGI is $75,000 which is more than $43,000 and hence the % will be 20 % on 6000.

CDCTC = $6000 * 2 = $1200

Hence, Child and Dependednt Tax credit for Ben and Bunny is $1200