Question

Billy and Peg have two children, ages 8 and 14. They spent a total of $6,200 this year ($3,100 per child) on employment related expenses for the care of their children after school. Billy earned a salary of $17,000 and Peg earned a salary of $19,000. They do not have any deductions for AGI, and they file a joint return. Calculate the dollar amount of their tax credit for child and dependent care expenses.

A. $1,380. B. $1,035. C. $1,488. D. $720.

Answer 1

Based on the information available in the question, we understand that Billy and Peg have ctwo children , aged 8 and 14. It is to be observed that per IRS, the child and dependent tax credit is eligible to be claimed for children under the age of 13.

As per the above condition, Billy and Peg can claim tax credit for only one child who is aged 8.

The tax credit is calculated on qualified expenses upto $3,000 (this is the maximum limit for claiming the credit).

Additionally, Billy and Peg have a AGI for $36,000 ($17,000 for Billy and $19,000 for Peg)

Per the observation of the IRS Earned income table, the AGI of $36,000 would be eligible for a credit of 24% on the qualified expenses upto $3,000

Hence, Billy and Peg's qualified tax credit for child and dependent care expenses:-

$3,000 * 24% = $720

As such, the correct answer is Option D - $720

Option A , Option B and Option C are incorrect because they represent values different from the actual child and dependency credit that Billy and Peg can claim as calculated above.