Question

Emily (34) will use the head of household filing status. She has one dependent child, Harper (5). During the year, Emily spent $7,000 for Harper's childcare. Emily's income during the year totaled $58,000, all from wages. She did not receive any dependent care benefits from her employer. What amount may Emily use to calculate the Child and Dependent Care Credit?

A. $0

B. $3,000

C. $6,000

D. $7,000

Answer 1

Emily may use $3000 to calculate the Child and Dependent Care Credit

Explanation

A qualifying individual for the child and dependent care credit is:

• Your dependent qualifying child who was under age 13 when the care was provided,
• Your spouse who was physically or mentally incapable of self-care and lived with you for more than half of the year, or
• An individual who was physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (a) was your dependent; or (b) could have been your dependent except that he or she received gross income of $4,200 or more, or filed a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer's 2019 return.

The Child and Dependent Care Credit can be worth from 20% to 35% of some or all of the dependent care expenses you paid. The percentage you use depends on your income. If your income is below $15,000, you will qualify for the full 35%. The percentage falls by 1% for every additional $2,000 of income until it reaches 20% (for an income of $43,000 or more).

The 20%-35% is taken from up to $3,000 of expenses paid for one Qualifying Person, or from up to $6,000 of expenses paid for two or more Qualifying Persons. Therefore, the maximum Child and Dependent Care Credit is worth $2,100 (based on 2 or more dependents and $6,000 or more of qualifying expenses).

Before figuring the credit, you must reduce your qualifying expenses by any amount of child or dependent care benefits that were provided by your employer and that you deducted or excluded from your income.

The Child and Dependent Care Credit is not refundable, so it is not worth anything if you owe no income tax.