Question

Gabe and Dana are married and file jointly. For 2019, Gabe earned $150,000 and Dana earned $20,000 working part time as a party planner. They have two young children, a 4-year old son, Mike, and a 6-year old daughter, Chrissy. In order to work, they paid the following for day care to have their children watched and cared for:

Best Beginning Day Care	$4,000
Bay Child Care & Housekeeping	2,000
Mrs. Goetz (Dana's mother)	1,000

​How much was their child and dependent care tax credit for 2019?

Answer 1

Your income determines whether or not you can claim the CTC. First, you need to have earned income of at least $2,500 to qualify for the credit. Then, as your adjusted gross income (AGI) increases, the child tax credit begins to phase out.

So, when you breach a certain income threshold (the phase-out level), you’re only eligible for a partial credit. As your income increases, the amount you can claim continues to decrease until you can’t claim the credit at all.

The new tax plan greatly increased the income threshold.

For tax year 2019, the CTC phase-out begins at $200,000 of AGI for single filers and heads of household. You can’t claim any of the credit if your income is more than $240,000. For joint filers, the credit begins to phase out at $400,000. It phases out completely at $440,000.

Restrictions on maximum amount of credit

With the CDCTC, you can claim a credit for up to 35% of qualified care expenses. The exact percentage that you are eligible to deduct depends on your income level. The maximum amount of care expenses to which you can apply the credit is $3,000 if you have one dependent and $6,000 if you have more than one dependent. That means the largest possible credit is $1,050 with one dependent and $2,100 with multiple.

According to the IRS, expenses that qualify for the CDCTC include money that you paid “for household services and care of the qualifying person while you worked or looked for work.” Child support payments do not qualify.

In this question, Payment made t her mother do not qualify as Child Care Cost and don't qualify in CDCTC.

Hence total payments of $ 6000 only qualify as CDCTC of which maximum credit will be subject to:

• 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). In this case since income is more than $ 43000, maximum credit will be at the rate of 20% of expenses qualify for CDCTC.
• Hence maximum credit can be $ 1200.
• 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.