C is corrent. TThe requirement is to determine the amount of the child care credit allowable to the Holms. The credit is from 20% to 35% of certain dependent care expenses limited to the lesser of (1) $3,000 for one qualifying individual, $6,000 for two or more; (2) taxpayer’s earned income or spouse’s if smaller; or (3) actual expenses. The $900 paid to the Alpine Day Care Center qualifies, as does the $1,100 paid to Cindy Holm. Payments to relatives qualify if the relative is not a dependent of the taxpayer. Since Ryan and Christine Holm only claimed three exemptions, Cindy was not their dependent. The $700 paid to Mulford Home Cleaning Service does not qualify since it is completely unrelated to the care of their child. The credit is 35% if AGI is $15,000 or less, but is reduced by 1 percentage point for each $2,000 (or portion thereof) of AGI in excess of $15,000 (but not reduced below 20%). As the Holms had AGI of $20,000, the 35% maximum credit is reduced by 3 percentage points to 32% ($20,000 − $15,000/$2,000 = 2.5). Since qualifying expenses were $2,000, the Holms’ credit is 32% × $2,000 = $640.A is incorrect. Their child care credit is $640. B is incorrect. Their child care credit is $640.
D is incorrect. Their child care credit is $640. |
