Child Care Credit - Answer-(also known as a dependent care credit) is provided as a payment against taxes that are owed by the individuals as a percentage of dependent care expenses paid. The class of individuals eligible for this credit is individuals who maintain a household for a qualified indiv...
Enrolled Agent Exam Review Questions
and Answers
Child Care Credit - Answer-(also known as a dependent care credit) is provided as a
payment against taxes that are owed by the individuals as a percentage of dependent
care expenses paid. The class of individuals eligible for this credit is individuals who
maintain a household for a qualified individual (usually a child) and who pay child care
expenses in order to be employed or look for work, or in order for both taxpayers to be
employed as in the case of married taxpayers filing a joint return (one spouse can be a
full time student). Although the credit is for child care expenses that allow the taxpayer
to look for work, if the taxpayer was not employed during the year, and had no earned
income for the year, the taxpayer cannot take the credit.
The credit is a nonrefundable credit allowed as a reduction of taxes due. The credit may
be up to 35% of the expenses paid for the care of each qualifying individual, and it is
limited to $3,000 in the case of one child and $6,000 in the case of more than one child.
The credit is reduced by 1% for each $2,000, or fraction of $2,000, of income between
$15,000 and $43,000.
A qualifying individual is usually a dependent (specifically a qualifying child) of the
taxpayer, under the age of 13. A qualifying individual also includes a dependent or
spouse of the taxpayer who is either mentally or physically incapable of caring for
themselves and who has the same principal place of abode as the taxpayer for more
than half a year.
A taxpayer's spouse or qualifying individual will be deemed to be gainfully employed
and to have earned income of $250 ($500 for more than one child) per month for each
qualifying individual for which the credit is claimed, for each month during which they
are a full time student.
A taxpayer can compute his or her child care credit amount on Form 2441, "Child and
Dependent Care Exp
Form 1040 - Answer-U.S. Individual Income Tax Return. This form is used when
deductions are itemized, the taxpayer has capital gains or losses to report, or other
forms need to be attached to report certain exclusions, taxes, or transactions.
Form 1040EZ - Answer-Income Tax Return for Single and Joint Filers with No
Dependents. Used only by individuals in low income brackets who have no itemized
deductions or other unusual items to report.
Form 1040A - Answer-U.S. Individual Income Tax Return. More difficult than 1040EZ,
but simpler than 1040.
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