Personal Tax Credits

Question 1

What is the order of credits applied?

Answer 1

1) Personal (nonrefundable) credits limited to gross tax and no carrryovers
2) General business credit limited to a percentage of gross tax after personal credits and excess carry back 1 yr forward 20
3) Refundable credits applied last

Question 2

What are the provisions of the Child Credit?

Answer 2

• $1,000 credit allowed for each qualifying child (defined under dependency rules) under age 17
• Must include children’s names and SS#’s on return
• Subject to phase out

Question 3

What are the provisions of the Hope Credit (American Opportunity Tax Credit)?

Answer 3

• Allowed to a maximum of $2,500 per student per year
• Applied to first $2,000 of qualified educational expenses and 25% of next $2,000
• Only for tuition and academic fees for first four years of post secondary education as part of degree program
• Subject to phase out

Question 4

What are the provisions of the Lifetime Learning Credit?

Answer 4

• Maximum of $2,000 per taxpayer for year
• Computed as 20% of $10,000 qualified educational expenses
• Subject to phase out

Question 5

What are the provisions of the Saver’s Credit?

Answer 5

• For voluntary contributions to IRA and qualified retirement accounts
• Maximum of $1,000
• Not allowed for taxpayers with AGI above $61,000

Question 6

What are the provisions of the Dependent Care Credit?

Answer 6

• Care giver cannot be a dependent relative or child of taxpayer
• Taxpayer must be employed and earn at least as much as the amount of the expenses
• Credit starts at 35%, minimum dependent care credit is 20% and maximum is $3,000 ($6,000 if more than one) or earned income if lower

Question 7

What are the provisions of the Adoption Credit?

Answer 7

• Reasonable expenses up to $13,4000 associated with adoption qualify
• $13,400 credit available for children w special needs regardless of actual expenses
• Subject to phase out

Question 8

What are the provisions of the Earned Income Credit (EIC)?

Answer 8

• Refundable
• Disallowed if investment income exceeds $3,400
• Cannot be claimed if MFS

Question 9

What is the penalty for large employers not offering coverage for full time employees and their dependents?

Answer 9

-Penalty of $2,000 per full time worker