How to Calculate Dependent Care Credit

What is the dependent care credit for Mr. and Mrs. Arlette?

Mr. and Mrs. Arlette spent $5,900 for child care for their 12-year-old daughter. Mr. Arlette's earned income was $178,000, Mrs. Arlette's earned income was $33,100, and the AGI on their joint return was $225,200. Calculate their dependent care credit.

Dependent Care Credit Calculation

The dependent care credit for the Arlettes is $1,180.

Calculating the dependent care credit involves considering the qualifying expenses and the taxpayer's income. In this case, the Arlettes spent $5,900 on child care and had an AGI of $225,200 on their joint return.

The credit amount is determined based on a percentage of the qualifying expenses, which typically ranges from 20% to 35% depending on the taxpayer's income. Since both Mr. and Mrs. Arlette's incomes are above the phase-out range, the credit is calculated at 20% of the qualifying expenses.

Therefore, the dependent care credit for the Arlettes amounts to $1,180, which is 20% of the $5,900 they spent on child care. This credit helps offset the costs associated with child care and can provide valuable tax savings for families like the Arlettes.