Question

William and Carla file a joint tax return. Carla earned $27,500 during the year, while William attended law school full-time for 9 months and earned no income. They paid $3,500 for the care of their 3-year-old child, Carl

Answer 1

Carla and William may be eligible for the Child and Dependent Care Credit for the $3,500 spent on their 3-year-old child's care.

Step-by-step explanation:

Carla and William paid $3,500 for the care of their 3-year-old child. The maximum qualifying expenses for the credit are $3,000 for one dependent. However, because they have one dependent and spent $3,500, the credit will be calculated based on the maximum qualifying expenses allowed for one dependent, which is $3,000.

The percentage of qualifying expenses used to calculate the credit decreases as income increases. The credit percentage ranges from 20% to 35% of eligible expenses, depending on the taxpayer's adjusted gross income (AGI).

Carla earned $27,500 during the year, and William had no income. To determine the exact credit percentage, we need to refer to the IRS guidelines. For the purpose of illustration, let's assume their AGI places them in the 20% credit range.

So, using the maximum qualifying expenses of $3,000 and a hypothetical 20% credit rate:

`\[ \text{Credit amount} = \text{Maximum qualifying expenses} * \text{Credit rate} \]`

`\[ \text{Credit amount} = $3,000 * 0.20 = $600 \]`

Based on these assumptions, Carla and William may qualify for a Child and Dependent Care Credit of $600 for the $3,500 they spent on their child's care. However, please note that the actual credit amount can vary based on their specific circumstances, including their total income and the applicable credit percentage according to the IRS guidelines. Consulting a tax professional for an accurate assessment is advisable.

Answer 2

The maximum allowable child and dependent care credit for William and Carla in 2019 is $1,050.

Determine the qualifying expenses:

The total care expenses paid for Carl, their 3-year-old child, amount to $3,500.

Identify the applicable credit limit:

Since they have one qualifying child (Carl), the credit limit for their case is $3,000 (refer to IRS Publication 503 for 2019).

Compare expenses and credit limit:

Since the qualifying expenses ($3,500) are higher than the credit limit ($3,000), the allowable credit amount will be capped at the credit limit.

Calculate the credit based on adjusted gross income (AGI):

In this scenario, Carla's income ($27,500) is considered the AGI because William had no income.

For AGI below $43,000, the child and dependent care credit percentage is 35%.

Therefore, the allowable credit amount is: $3,000 (credit limit) * 35% = $1,050.