Tax Credits Flashcards
Personal Tax Credits
Reduce liability $ for $
More valuable than deductions
REFUNDABLE credits allow a taxpayer to receive payments from the federal government in excess of income tax withholding for the year
Child Tax Credit
$1,000 credit for each QUALIFYING CHILDREN under the age of 17
Phased-out for higher income taxpayers
American Opportunity Tax Credit
$2,500 allowed IF in one of first four years of post-secondary education
- 100% for first 2,000 of tuition, fees, and course materials
- 25% for next 2,000
*Expenses must relate to current tax year or first three months of next year
**MUST be enrolled in a degree program
50% full time
Lifetime Learning Credit
After first four years, doesn’t expire; does not need to be enrolled in a degree program; no 50% full time requirement
MAX CREDIT = 2,000
20% of tuition (need 10,000 in tuition for full credit)
PER TAXPAYER NOT STUDENT
Child and Dependent Care Credit
Percentage of qualified expenses incurred for a qualified individual to enable the taxpayer to work
(between 20-35%)
QUALIFIED INDIV.
- under age 13
- dep/spouse physically/mentally incapacitated
1. QUALIFYING EXPENSES: limited to lower of: - 2. EARNED INCOME lowest paid spouse -3. $3,000 (6,000 for 2 or more kids) ***lower of these three allowed
Begins at 35% if AGI is 15,000 or less. Reduced 1% for each 2,000 of AGI over 15,000
NEVER BELOW 20%
Earned Income Credit (refundable)
Generated by earning income
% increases if the taxpayer maintains a home with qualifying children
Phased-out based on EI or AGI exceeding a threshold
wages, tips, se earnings, combat pay included
Healthcare Individual Mandate
MUST pay a penalty if taxpayer does NOT maintain the minimum essential health care coverage
Min. coverage includes medicare, medicaid, employer-sponsored plans, etc.
$695 per adult
$347.50 per child
Greater of
MAX $2,085 per family
OR
2.5% of family income in excess of filing threshold
Healthcare Credit (refundable)
Available for those whose income is between 100% and 400% of the federal poverty level and do not otherwise have access to coverage
CREDIT is advanceable meaning it can be used to reduce the monthly health care premium during the year
*IF income increases during year…will have to pay money back in
Employer Mandate - No Coverage Penalty
A large employer (at least 50 employees) NOT offering coverage for ALL full-time employees and their dependents, offering minimum essential coverage that is UNAFFORDABLE, or offering coverage that is LESS THAN 60% of medical expenses is required to pay a penalty
Annual tax penalty is $2,000 PER full-time worker
ALSO – if offering insurance but not meeting appropriate requirements and ONE employee qualifies for credit THEN employers must pay $3,000 per employee per year for these employees
Energy Credits
Nonbusiness - 10% of the amount spent for energy efficiency improvements and residential energy property - LIFETIME LIMIT $500
REEP - Residential Energy Efficiency Property - for expenditures for installing certain energy efficient property in the residence
Foreign Tax Credit (individuals or businesses)
Limited to the lower of foreign tax paid or the proportion of US tax allocable to foreign source income which is = to:
U.S. Tax * [foreign ti/ww ti]
General Business Credit
Consists of a combination of credits designed to subsidize certain activities. While each credit is calculated interdependently, the combination is subject to an overall limit
carry back 1 year, forward 20 years
CANNOT offset all of regular tax is liability exceeds $25,000
Research Credits
Incremental research expenditures are eligible for a 20% credit; conducted in the US; DOES NOT apply to research for commercial production, surveys, or social science research
ALTERNATIVE simplified research credit = 14% of the excess of qualfied research expenses over 50% of the last 3 years average
qualified - 50% 3yr average = X * 14%
Work Opportunity Tax Credit
Calculated on the amount of wages paid per eligible employee during the FIRST YEAR of employment
= 40% of qualified wages, MAX CREDIT of $2,400
Elective credit; becasue you do not get to take deduction if take credit
*Targeted groups: common one veterans
Small Business Health Care Tax Credit
50% of non-elective health insurance premiums
ELIGIBLE employer:
- LESS than 25 full-time employees whose avg annual wages is LESS than 51,600
- employer has to pay at least 50% of premiums
Credit applies for any type of business
Begins phasing out when full time employees = 10 ppl and avg annual income = 25,000
