Randy is single and earns $80,000 per year. He maintains a home for his father,

Question

Randy is single and earns $80,000 per year. He maintains a home for his father, who has been confined to a wheelchair since he had a stroke several years ago. Randy’s father receives $6,000 in Social Security but has no other income. Because his father requires constant attention, Randy hires a helper to take care of his father while he is at work. Randy pays the helper $13,000 during the current year.

Determine the amount of the child- and dependent-care credit to which each of the following taxpayers is entitled.

Explanation / Answer

Answer: To qualify for the credit, too conditions must be satisfied :-

1. The taxpayer must incur employment related expenses and

2. The expenses must be for the care of qualified individuals.

An employment is one that must be paid to enable the tax payer to work and must be paid for either household services or for the case of a qualified individual. Generally the expenses must be incurred with the tax Payers home, although out of the home expenses for dependents younger than the 13 and for a disabled dependent or spouse (if the disabled person spends at least eight hours per day in the home) also qualify. By hiring a helper, Randy is able to maintain employment. Because Randys father is disabled and meets the dependency tests he is a qualified individual.

Randys adjusted Gross Income (AGI) is greater than $28000, so Randy receives the minimum credit of 20% therefore Randys child and dependent care credit is $480 (20% × 2400 ( the $13000 is limited to the $2400 maximum expense for 1 Qualifying individual )).

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