4 Tax Credits

Question 1

Child Tax Credit

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Answer 1

Support for families
- Up to $2,000
- Partially refundable up to $1,700 (as “add’l child tax credit”)
- TTs says “MAGI begin. phaseout range $200K S/MFS/HOH or $400K MFJ… after $40K, totally phased out” (and so can rev. calc. $2K ÷ $40K = 5% = $50 phaseout per $1,000 add’l MAGI)

Child must
- be eligible to be claimed as a dependent
- < 17 at EOY
- live at same residence for 1/2 year
- can’t provide 1/2 their own financial support

Question 2

Child & Dependent Care Credit

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Answer 2

Provides relief for taxpayers who incur child & dependent care costs due to employment.

Reqs:
- Gainful employment causes child/dependent expenses
- Dep. < 13 yrs old OR incapac. dep. or spouse

Calcs:
- 20% to 35% of qual. expenses depending on AGI
- expense ceiling of $3K single / $6K family
- % reduced 1% for each $2K (or fraction) for AGI > $15K BUT bottoms out at 20% applied if AGI > $43K
- non-refundable

Question 3

American Opportunity Tax Credit (AOTC)

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Answer 3

Reqs:
- For higher ed tuition, fees, & course material (for indiv, spouse, or deps)
- For first four years of higher ed.
- Have to be ≥ half-time (unlike LLC which doesn’t care)

Benefits:
- First $2K: 100% credit
- Second $2K: 25% credit
- So max credit is $2,500
- Up to 40% refundable ($1,000 = 40% of $2,500)

Question 4

Lifetime Learning Credit (LLC)

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Answer 4

Offset costs of higher education for unlimited number of years, part-time or full-time)

Reqs:
- you, spouse, or dep.
- tuition, fees, & req. course material
- doesn’t have to be ≥ half-time like AOC
- doesn’t have to be first 4 years like AOC (hence “lifetime”)
- can’t use LLC and AOC in same year
- need Form 1098-T from the institution

Benefits:
- Up to 20% of $10K expenses per return (so $2K max)
- TTs specifies “AGI phaseouts x - y for Single and MFJ” (unavail. for MFS)
- non-refundable

Question 5

Premium Tax Credit

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Answer 5

Helps low-income families afford ACA insurance.
- Can be claimed in advance
- < 100% - 400% of federal poverty level
- n/a for MFS
- fully refundable

Question 6

Earned Income Tax Credit (EIC)

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Answer 6

Benefits low-income working indivs & fams esp with children.

Reqs:
- Invmt income < $11K

Benefits:
- $600 w/o kids, $4K with 1 kid, $6.6K with 2, $7.4K for 3+
- fully refundable