John and Rebecca are married, both are employed, and they have three children all under the age of 10. The two youngest children are in preschool and the oldest child is in grade school. They claim their children as dependents and file a joint return. Their adjusted gross income (AGI) is $35,000. John earned $29,000 and Rebecca earned $6,000. During the year, they paid $2,000 each for the two children to attend preschool. They also paid Rebecca's mother $3,000 to watch the oldest child after school. How much of their childcare payments are eligible to calculate the child and dependent care credit on their return?
A taxpayer may include up to $6,000 of expenses paid for the care of two or more qualifying persons to figure the child and dependent care credit, provided the amount of expenses claimed does not exceed the gross earnings of the lower earning taxpayer. The expenses paid to Rebecca's mother are acceptable; however, Rebecca must provide her mother's name, SSN, name and address on form 2441. A taxpayer should combine the total qualifying expenses for all qualifying persons. In this case John and Rebecca would combine the amounts paid for the two preschool children of $4,000 and the amount paid for after school care of $3,000. However, the total of $7,000 exceeds the maximum of $6,000 therefore they may only use $6,000 of the child care expenses to calculate the child and dependent care credit. Please note, that if there is only one child the maximum amount of expenses to figure the child and dependent care credit is $3,000.Correct Answer: C