Julie paid a day care center to watch her two-year-old son while she worked as a computer programmer for a local start-up company. What amount of child and dependent care credit can Julie claim in each of the following alternative scenarios?

a. Julie paid $2,000 to the day care center and her AGI is $50,000 (all salary).

b. Julie paid $5,000 to the day care center and her AGI is $50,000 (all salary).

c. Julie paid $4,000 to the day care center and her AGI is $25,000 (all salary).

d. Julie paid $2,000 to the day care center and her AGI is $14,000 (all salary).

e.
Julie paid $4,000 to the day care center and her AGI is $14,000 ($2,000 salary and $12,000 unearned income).

Answer and Explanation:

The computation of In each of the following alternative situations, Julie will demand the amount of child and dependent care credit is shown below:-

According to the 1st situation

Particulars                                                Amount

a. Expenditure of dependent care         $2,000

b. Qualifying expenses for one

dependent on limit                                 $3,000

c. Earned income of Julie                      $50,000

d. Expenses eligible for credit               $2,000 (which is least of a,b, and c)

e. Percentage rate on credit                  20% (AGI over $43,000)

f. Child and dependent care credit        $400 (2,000 × 20%)

According to the 2nd situation

Particulars                                                Amount

a. Expenditure of dependent care         $5,000

b. Qualifying expenses for one

dependent on limit                                 $3,000

c. Earned income of Julie                      $50,000

d. Expenses eligible for credit               $3,000 (which is least of a,b, and c)

e. Percentage rate on credit                  20% (AGI over $43,000)

f. Child and dependent care credit        $400 (3,000 × 20%)

According to the 3rd situation

Particulars                                                Amount

a. Expenditure of dependent care         $4,000

b. Qualifying expenses for one

dependent on limit                                 $3,000

c. Earned income of Julie                      $25,000

d. Expenses eligible for credit               $3,000 (which is least of a,b, and c)

e. Percentage rate on credit                  30% (AGI over $25,000)

f. Child and dependent care credit        $900 (3,000 × 30%)

According to the 4th situation

Particulars                                                Amount

a. Expenditure of dependent care         $2,000

b. Qualifying expenses for one

dependent on limit                                 $3,000

c. Earned income of Julie                      $14,000

d. Expenses eligible for credit               $2,000 (which is least of a,b, and c)

e. Percentage rate on credit                  35% (AGI over $15,000)

f. Child and dependent care credit        $700 (2,000 × 35%)

According to the 5th situation

Particulars                                                Amount

a. Expenditure of dependent care         $4,000

b. Qualifying expenses for one

dependent on limit                                 $3,000

c. Earned income of Julie                      $2,000

d. Expenses eligible for credit               $2,000 (which is least of a,b, and c)

e. Percentage rate on credit                  35% (AGI over $15,000)

f. Child and dependent care credit        $700 (2,000 × 35%)

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