The following example shows how to figure the credit for child and dependent care expenses for two children when employer dependent care benefits are involved. The filled-in Form 2441 is shown at the end of this chapter.

Illustrated example.
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 child-care center while she works. The benefits from this child-care 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 in box 10 of her Form W-2, 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. She pays her neighbor $2,400 for this care.

Work-related expenses Joan paid	$2,400
Dollar limit	$4,800
Minus: Dependent care benefits   excluded from Joan's income	-3,000
Reduced dollar limit	$1,800
Lesser of Expenses paid ($2,400) or   Dollar limit ($1,800)	$1,800
Percentage for AGI of $29,000	x .20
Amount of credit (20% of $1,800)	$ 360

Form 2441, Page 2

Previous | Next

Publication 17 | 1999 Tax Year Archives | Tax Help Archives | Home