Question

jack and jill have one daughter, blue, who is 5 years old and red who is 2 years old. in 2023, they paid a nanny $15,000 to look after the kids while they were working. in 2023, jack received a salary of $92,000 and jill received a salary of $75,000. jack and jill had no other income in 2023. which of the two can claim the childcare expenses on their return? Calculate the childcare expense that may be claimed. (show all work on how to calculate).

Answer 1

Jill, with a lower income of $75,000, can claim childcare expenses up to $15,000 on their tax return, or the government-set limit per child, whichever is lower.

Step-by-step explanation:

For Jack and Jill, the one who can claim childcare expenses on their tax return is the spouse with the lower income unless there is a situation such as sickness, incarceration, or education that requires the higher-income spouse to claim the expenses. In this case, since Jill has a lower income of $75,000 compared to Jack's income of $92,000, she would be able to claim the childcare expenses.

To calculate the childcare expense that may be claimed, we must follow the rules set by the relevant tax authority, which generally states that the amount claimable is the least of:

The total amount spent on childcare ($15,000)

The total income earned by the spouse with the lower income ($75,000)

The limit set by the government per child, which is often specified in the tax legislation

Without the specific government limit per child on childcare expenses known, the calculation is limited to the actual expenses incurred or the lower-earning spouse’s income. Therefore, Jill can claim up to $15,000, or the limit per child set by the government, whichever is less.