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Publication 17


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.

Illustrated example.(p218)

Joan Thomas is divorced and has two children, ages 3 and 9. She works at ACME Computers. Her adjusted gross income (AGI) 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 tax liability limit from Form 2441, line 10$ 963
9)Credit (Enter the smaller of line 7 or line 8)$ 672
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