The following example shows how to figure the credit for child and dependent care expenses for two children when employer-provided dependent care benefits are involved. The filled-in draft Form 2441
is shown at the end of this chapter.
Joan Thomas is divorced and has two children, ages 3 and 9. She works at ACME Computers. Her adjusted gross income (AGI) (shown on her Form 1040A, line 22) is $29,000, and the entire amount is earned income.
Joan's younger child (Susan) stays at her employer's on-site childcare center while she works. The benefits from this childcare center qualify to be excluded from her income. Her employer reports the value of this service as $3,000 for the year. This $3,000 is shown on her Form W-2 in box 10, but is not included in taxable wages in box 1.
A neighbor cares for Joan's older child (Seth) after school, on holidays, and during the summer. Joan pays her neighbor $2,400 for this care.
Joan figures her credit on Form 2441 as follows.
|1)||Work-related expenses Joan paid||$ 2,400|
|2)||Dollar limit (2 or more qualified individuals)||$ 6,000|
|3)||Minus: Dependent care benefits excluded from Joan's income|| -3,000 |
|4)||Reduced dollar limit|| $ 3,000 |
|5)||Lesser of expenses paid ($2,400) or dollar limit ($3,000)||$ 2,400|
|6)||Percentage for AGI of $29,000 (28%)|| .28 |
|7)||Multiply the amount on line 5 by the percentage on line 6 ($2,400 x .28)||$ 672|
|8)||Enter the amount from Form 1040, line 46||$ 973|
|9)||Enter the amount from Form 1040, line 47|| 0 |
|10)||Subtract line 9 from line 8||$ 973|
|11)||Credit (Enter the smaller of line 7 or line 10)|| $ 672 |