Harry and Wilma are married and file a joint return for 2015. On this return, th

Question

Harry and Wilma are married and file a joint return for 2015. On this return, they report $40,000 of adjusted gross income ($ 18,000 salary earned by Harry and $22,000 earned by Wilma) and claim two exemptions for their dependent children. During 2015, they paid the following amounts to care for their 4-year old son and 6-year old daughter while they worked: ABC day Care Center $2,000 X Housekeeping Services $2,000 Mrs. Smith (Harry mother) $1000 Harry and Wilma may claim for 2015 a credit for a child and dependent care expenses of: a) $960 b) $1000 c) $1440 d) $1500 e)none of the above.

Explanation / Answer

(e) none of the above

Tax credit of dependent and day care expense is between 20% to 35% of the creditable expense or $6000 which ever is lower, and percentage depends on the Adjusted gross income, for $40000 of income .Percentage is 22%

Amount Claimable = 22% of {$5000 or $6000 , whichever is lower }   

= 22% of $5000

= $1100

Note:- expenses payment in physical care of childrens as well as of household expenses are creditable expenses. Payment to relative also qualifies for credit.

Creditable expenses =$2000 + 2000 +1000 = $5000

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