 Here we are in our example. Form 1040 populated with LASERT tax software. You don't need tax software to follow along, but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website, irs.gov, irs.gov. Starting point single filer Mr. Anderson living in 90210 Beverly Hills. We got the W2 income at 100,000, 12,950 standard deduction, 87,050 for the taxable income page. Number two, 14774 for the tax calculation, 15,000 withheld bottom line 226. Now we'll go back on over to page one. Our focus is on child independent care expenses. So let's first add a dependent, which will typically move someone up if they were a single filer to the head of household filer. We'll have the child tax credit, which is different than what we're talking about here. Child independent care expenses and then we'll jump into those items. Okay, so here we have it. Now we have added Joe Anderson as a son qualifies for the child tax credit. We're going to be saying, which is not our focus here. It's similar name. We're focused on the child independent care expenses, but we'll see how the normal things kind of integrate together when you've got a child. And so we're going to then say, okay, page one, actually it should be head of household. Okay, I fixed it. I fixed it. So it's head of household now. So now everything else is the same, but the standard deductions at 1400 gets us to the 80,600 page number two, then we have the tax at 11855. And then we've got the child tax credit. That's the one thing that has changed now. So now we're going to tack on to that. The other benefit of possibly having the child is that you can have expenses related to the care of the child. So normally when we think about this from just a practical data input standpoint, most software, you'll think about two kinds of sides to this, we're going to have one, the child that or that you're claiming the expenses for, and then we're going to have the institution that we're going to have to be claiming the expenses. Whoever did the childcare that we're going to need the number for. So let's first, I only have one dependent here. So it's pretty easy. We're going to say that was for Joe Anderson here. And then the qualified dependent care expenses. Let's put something over the threshold. It's going to cap it at 3000. I'm going to go over the threshold for now. So we could see that cap and go up to 5000. And then the other side of things we need to do is the institution. So I'm going to, I just made up an institution here. So what we need is the name of the institution, the address of the institution, and you need the institution's EIN number. If it is an institution, if it's an individual, then they might have the social security number. So that's the typical information you're going to need. Notice here that I'm populating as well the total amount paid to care provider in 2022. So because there's only one dependent, it's pretty straightforward. It can get a little bit confusing when you have multiple dependents that are possibly are being taken care of by the same provider. So you can imagine, for example, having two kids and maybe we'll test that out shortly with the same care provider. And so you paid 5000 each for each individual kid or something like that. But let's start here for now. So I'm going to go back on over and say, okay, obviously we're going to, we're going to imagine that the care was provided to help to generate the, to allow Mr. Anderson here to work. And because Mr. Anderson is single, you would think that the care provider would be, you know, more easy for to fit that qualification. Although it does get a little bit confusing when you're talking about, say, what's the primary goal that you're sending the child for the care for? Is it for the care or for some, you know, other purpose like educational purpose or something like that? But we're going to, we're just going to practice the data input now. So then on page number two, page one is much the same page number two. Now you got this other $600 that's been pulled in from schedule three, line eight. So if I go to schedule three, line eight, here it is. This is the credit for child independent care expenses from form two, two, I mean, two, four, four, one. So we could go to form two, four, four, one. This is the child independent care expenses. So we've got the name up top, our social security number. And then here's the care provider's name. This is the person or organizations who provide the care, the address, the number. That's what the IRS typically wants was the care provider, your household employee in 2022. In this case, we're saying no, the amount paid $5,000 we're saying. And obviously you want to have the support for that in the event that you had an audit or something you'd want to be able to support that, that number. And then down here, you can see it's basically going to be capped at 3000 where it says add the amount on column D to line two, don't enter more than 3000 if you had one qualifying person or 6000 if you had two or more persons. So it's going to be capped at 3000 for one, 6000 for two or more. Earned income is the 100,000 that's pulling in from the form 1040. And then basically you can, you can see they're taking the table down here. So it capped out of 3000. And then they're taking the table, which is going to take some fraction of the allowable credit, not 5000 what we paid, but the cap in this case of the 3000 is looking at this table to see that we're at the 100,000. So you can see obviously as the income goes up, it's going to be having a smaller number that's going to be used. And it's picking up the 43,000 and over the 20. So 3000 times the 20% is the 600. And then we could have a limitation for the tax liability because I don't believe this is a, this is a non-refundable, not a refundable credit. And that's what's pulling into the line three, which is pulling in to the first page of, I'm sorry, the second page of the form 1040. Now, obviously, now the other thing to note here is that you do need to have an income for the calculation. So let's imagine you didn't have any earned income and you had some other source of income, like interest or something maybe. So let's say earned income is gone. Well, then we're going to say then you might have had like interest income, like dividends or something. Interest income was 10,000, let's say, 10,000 interest income, and that's it. And then so you could see now it's not calculating because we didn't have any income. And the point of the credit is that you had income and you're paying the expenses in order to generate income, but you didn't have any income and passive income doesn't really count, right? Even if I made the passive income 100,000, then generally still you may have the child tax credit pops up here, but we don't see that $600 for the other credit because that's all passive income. It's not active income. It's not in this first section of the income, but down here in the passive area. All right, now let's imagine that you had a decent amount of income 20,000, but still with the standard deduction at the 19,400, taxable income would only be at $600. So that would mean the tax is quite low at $61. And then you could see what we still have the calculation here, but it's being limited to the $61 right here, $61 from schedule three. And then if I go to two, four, four, one, just to look at that calculation, we paid the $5,000. We have the $3,000 limit. And now you have a different rate that's being used because we didn't have as high of an income. So it would have been at the 960, but it capped it at the 61 because it's non-refundable, right? It's not taking the liability below zero. It's taking the tax being paid down to zero. Now it's kind of interesting the interplay between a credit like this credit and the child tax credit, which has similar characteristics to it because the child's going to be involved with it. And the child tax credit does have a refundable component to it. So notice it basically allows you the credit for child independent care. And then the child tax credit, you have the additional child tax credit, which is the refundable portion of the child tax credit. So some of these get a little bit messy when you think about the interplay between the different credits, especially when you get into like refundable and non-refundable portions of the credits.