Harry and Wilma are married and file a joint income tax return. On their tax return, they report $44,000 of adjusted gross income ($20,000 salary earned by Harry and $24,000 salary earned by Wilma) and claim two exemptions for their dependent children. During the year, they pay the following amounts to care for their 4-year old son and 6-year old daughter while they work

ABC Day Care Center $3,200
Blue Ridge Housekeeping Services 2,000
Mrs. Mason (Harry's mother) 1,000

Harry and Wilma may claim a credit for child and dependent care expenses of:
a. $840.
b. $1,040.
c. $1,200.
d. $1,240.
e. None of the above.

c
RATIONALE: Total qualifying child care expenses are $6,200 ($3,200 + $2,000 + $1,000). A provider of child care can also perform housekeeping chores. Also, the amounts paid to Mrs. Mason qualify since she is not their child. Thus, 20% × $6,000 (maximum allowed) = $1,200 child care credit.