The following examples show how to figure the credit for child and dependent care expenses. A filled-in page 1 of Schedule 2 (Form 1040A) that illustrates Example 1 and a filled-in Form 2441 (filed with Form 1040) that illustrates Example 2 are shown after the examples.

Example 1. Child Care -- Two Children

Jerry and Ann Jones are married and keep up a home for their two preschool children, ages 2 and 4. They claim their children as dependents and file a joint return using Form 1040A. Their adjusted gross income (AGI) is $27,500. Jerry earned $12,500 and Ann earned $15,000.

During the year, they pay work-related expenses of $3,000 for child care for their son Daniel at a neighbor's home and $2,200 for child care for their daughter Amy at Pine Street Nursery School.

They figure their credit on Schedule 2 as follows.

Child care by neighbor	$3,000
Child care by nursery school	+2,200
Total work-related expenses	$5,200
Dollar limit	$4,800
Lesser of expenses paid ($5,200) or dollar limit   ($4,800)	$4,800
Percentage for AGI of $27,500	21%
Amount of credit (21% of $4,800)	$1,008

Example 2. Dependent Care Benefits

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.

Schedule 2 - for Jerry and Ann Jones

Form 2441 Page 1 for Joan Thomas

Form 2441 Page 2 for Joan Thomas

Joan figures her credit on Form 2441 as follows.

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	20%
Amount of credit (20% of $1,800)	$  360

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