It is a true statement that they can claim the credit for child and dependent care expenses.
The credit is a tax benefit provided by the IRS to help eligible taxpayers offset the costs incurred for the care of their dependents while they work or seek employment.
Total eligible expenses = Monthly daycare cost * Number of months
= $200 * 12
= $2,400
The allowable expenses must be capped at the lower of:
- Total eligible expenses ($2,400).
- The lower-earning spouse's income ($2,600 for Deb).
So, their allowable expenses are $2,400.
We must calculate percentage based on their adjusted gross income to calculate the child and dependent care credit.
The credit percentage decreases as AGI increases, but for an AGI of $16,228, we will use the maximum credit rate of 35%.
Child and dependent care credit = Allowable expenses x Credit percentage
= $2,400 x 35%
= $840
So, they can claim a child and dependent care credit of $840 on their tax return.
The full question is:
Cliff (W2 wages: $16,228) and Deb (W2 wages: $2,600) send their daughter Julia (born 10-1-2006) to daycare while they both worked. They paid $200 per month for daycare. They are filing MFJ. They can claim the credit for child and dependent care expenses. True or False