Child and Dependent Care Credit

Lesson: Child and Dependent Care Credit

In this lesson, Nick Palazzolo, CPA, unpacks the intricacies of the Child and Dependent Care Credit, elaborating on how it provides financial relief for those with child care expenses. He describes critical elements such as the credit percentage, maximum qualifying expenses, and the influence of the taxpayer's adjusted gross income (AGI) on the credit calculation. Nick simplifies the daunting task of managing the varying credit amounts and phase-outs, offering practical strategies for anticipating those changes on the exam. By laying out clear examples, he makes the calculation of the credit both understandable and accessible. Nick also underscores the distinction between this credit and the Child Tax Credit, candidly navigating through the details with a dash of humor to lighten the learning experience.

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Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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All right, now we're getting into each individual credit, and we will have the ever-changing amounts in the resources within the lesson. So, you know, those do change year to year. We want to make sure we have the updated amounts. However, there are some amounts that do not change. We've got the maximum qualifying expenses amount, some of those we'll see. So this credit here is designed to help working taxpayers offset the cost of child care or care for a disabled despendent or spouse. We've got a couple key points here. Well, we've got a credit percentage. The credit is going to be calculated as a percentage, we'll see it here, of work-related child independent care expenses ranging from 20% to 35% depending on the AGI. Those AGI amounts, again, do change year to year. So we've got those included separately. Now, maximums, the maximum qualifying expenses are $3,000 for one dependent child and $6,000 for two or more dependent children. So at minimum here, you can have $3,000 for one child, $3,000 times two for two children, but anything over two children still capped at $6,000. For eligibility here, the child must be under the age of 13 or a qualified dependent or spouse. So we see here, and we will dive into it more on that specific slide, but the child independent care credit, children need to be under 13, whereas for the child tax credit, that's under the age of 17. So again, just a difference there, but again, we will dive into those more as we see them. Disabled and cannot care for themselves. If it's a child, the child does not need to be a direct descendant of the taxpayer, only a qualifying child, to which we say, if you don't know what

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