Chapter 13 handout

Chapter 13 handout - Individual Tax Accounting Planning...

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Chapter 13 We will focus on the following credits and taxes: Earned Income Credit - refundable Who is eligible? Must meet certain earned income and AGI thresholds and have at least one qualifying child; or For workers without children, must be between the ages of 25 and 64, who cannot be claimed as a dependent on another’s return, and earned income and AGI must meet certain thresholds Definition of earned income: employee compensation and net earnings from self-employment, but excludes interest, dividends, pension benefits, non-taxable employee compensation and alimony If taxpayer has interest plus dividend income in excess of $3,100, the taxpayer is not eligible for the Earned Income Credit. Calculating the credit: Go to table 13.2 on page 13-16 in text. a. Find the filing status for your taxpayer: either MFJ or other b. Find the number of qualifying children under the filing status c. Make sure that the earned income of the family or individual is at least the “Earned Income Base Amount”. d. Multiply the Earned Income Base Amount by the credit percentage to arrive at the maximum credit e. Is the taxpayer’s earned income (or AGI *) less than the phase-out beginning point? o Yes, taxpayer may take the maximum credit calculated in step “d” o No, some of the earned income credit will be phased-out, go to step “f” f. For every $1.00 that the taxpayer’s earned income or AGI* exceeds the beginning of the phase- out, multiply by the phase-out percentage g. The taxpayer’s earned income credit equals the maximum credit minus the amount phased-out in step “f” *choose the larger of earned income or AGI Child Tax Credit - nonrefundable Who is eligible? Taxpayer must have at least one qualifying child claimed on tax return, who is younger than 17 years old at the end of the tax year. Amount of the Credit:
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Chapter 13 handout - Individual Tax Accounting Planning...

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