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Child Care Credit Calculation

Course: Income Tax Planning
Lesson 14: Tax Credits, Payments, and Forms

Student Question:

Could you show me the calculation for Question 3? I calculate 20% of $12,000 , which is $2,400.

Emily’s job requires that she put her three children, all under the age of 13, in daycare. She is unmarried and files as Head of Household. Emily paid qualifying childcare expenses of $4,000 for each child in the current year. All of her $50,000 income is earned income from her employer. Based upon her adjusted gross income, the Child Care Credit rate is 20%. How much may she claim as a Child Care Credit for the current year?

  1. $2,400
  2. $1,800
  3. $1,200
  4. None of the above

Thanks,

Lyndon


Instructor Response:

Hi Lyndon,

Question #3 illustrates a potential CFP Board Exam curveball. Let me take you through the process of applying the 20% credit. The maximum that can be taken into account when calculating the credit is the LESSER of:

  • Actual qualifying expense
  • Emily’s earned income
  • $3,000 (one child) or $6,000 (more than one child)

The answer is $1,200, calculated as 20% of $6,000.

How completely does this address your question?

Bruce