In computing the child and dependent care credit, the amount of employment-related expenses is the lesser of $2,500 (the lowest earned income of A or B) or $3,000 (the statutory limit of one qualifying individual), or $5,500 (the actual amount of expenses).
Therefore, the couple is not entitled to any child and dependent care credit.
The Working Families Tax Relief Act of 2004 (18) made three important changes to the child and dependent care credit effective for tax years beginning in 2005: (1) The definition of a qualifying dependent is conformed to that of the uniform definition of a child, thereby requiring the individual to have the same principal place of abode as the taxpayer for more than half of the tax year; (19) (2) the taxpayer claiming the credit need not "maintain" the household; and (3) an individual who is physically or mentally incapable of caring for himself or herself must live with the taxpayer for more than half of the tax year in order to qualify.
Provide that certain government benefits (food stamps, Section VIII housing subsidy, payments under the Temporary Assistance to Needy Families program, child's social security benefits) do not "count against" the custodial parent in determining "expanded support" for purposes of the dependency exemption, HOH, and the child and dependent care credit.
Repeal the Child Tax Credit (IRC [sections] 24); replace it by increasing the amount of the dependency exemption and expanding the child and dependent care credit.
T's child and dependent care credit for the tax year is $483 ($2,100 x 23%).
H and W may claim a child and dependent care credit of $840 [$4,200 x 20% (the maximum amount of qualifying expenses is limited to the earned income of the spouse with the smaller earned income)].
In this situation, the amount of the reimbursement or the value of the care provided is excluded from the gross income of the taxpayer provided the requirements for the child and dependent care credit as previously described are met.
According to Treasury Secretary Snow, the new law's uniform definition of a child helps realize President Bush's overall goal of simplifying the Code, by creating one definition for purposes of the dependency exemption, head-of-household (HOH) filing status, the earned income credit (EIC), the child credit and the child and dependent care credit.
24(a); for purposes of the child and dependent care credit, the child must be under age 13, according to Sec.
Taxpayers with disabled dependents may elect to use certain expenses as either deductible medical expenses, or as qualifying payments for the child and dependent care credit
, whichever is most beneficial.