Chapter 10 - Income Taxation: Chapter 10 Individual Income...

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Unformatted text preview: Income Taxation: Chapter 10 Individual Income Tax Credits Tax 1 Major Individual Credits Major s Refundable Credits s Earned Income Tax (EITC) s Child Tax Credit s Nonrefundable Credits (may reduce “regular and amt” tax) Nonrefundable “regular s Credit for Adoption Expenses s Child & Dependent Care Credit s Hope Scholarship and Lifetime Learning Credits s American Opportunity Tax Credit 2 Refundable Credits s Earned Income Tax Credit (EITC) s Purpose: To ease the burden of social security taxes for low income individuals. income s Credit is computed by multiplying “earned income” (wages, Credit salaries, tips, etc.) times a percentage which varies depending on the TP’s number of “qualifying children” on s The credit is completely phased out at relatively low levels of The AGI; around $38,500 for TPs married filing jointly with one qualifying child. s Maximum EITC for 2009: $457 (no children), $3,043 (1 child), and $5,028 (2 or more children). (1 s Credit enhanced under American Recovery and Reinvestment Act of 2009 (i.e., Credit 45% of first $12,750 of earned income for taxpayers with 3 or more children) 45% 3 Refundable Credits s Child Tax Credit s s s Originally, $600 credit per qualifying child for years 2002 – Originally, 2004* ($700 in 2005-08, $800 in 2009, and $1,000 in 2010) 2004* “Qualifying Child”: child or descendent under age 17, who Qualifying may be claimed as a dependent and is a citizen or resident of the U.S. the Credit is phased out $50 for each $1,000 or fraction thereof Credit TPs AGI exceeds thresholds: TPs s $75,000 single or head of household s $110,000 MFJ *The JGTRRA of 2003 increased s $55,000 MFS credit to $1,000 for 2003 and 2004...now effective through 2010 under 2004 Working Families Tax Relief Act. 4 Non-refundable Credits Credit for Adoption Expenses s $12,150 per eligible child (under age 18) for $12,150 qualified adoption expenses ($11,650 for 2008) qualified s $12,150 for a special needs child - regardless of $12,150 adoption expenses as of 2003 ($11,650 for 2008) adoption s A special needs child must be a U.S. citizen or special resident and requiring adoption assistance s Qualified Expenses include: legal fees, court Qualified costs, and other related costs with regard to legal adoption adoption s The limit is per child, not per year (c/o of 5 years) 5 Non-refundable Credits Credit for Adoption Expenses s Credit phases-out for TPs w/2009 AGIs exceeding Credit $182,180 - completely phased-out at $222,180. The 2008 phase-out began at $174,730…$40,000 phase-out. phase-out. s Employer-provided exclusion for adoption Employer-provided assistance is $12,150 for 2009 ($11,650 for 2008) whether or not child has special needs. whether s Exclusion for special needs adoption applies Exclusion regardless of whether employee has qualified adoption expenses. 6 Non-refundable Credits s Child and Dependent Care Credit s Purpose: to relieve burden of two-earner families who must pay for dependent care must s Qualifying Dependents: Dependent “qualifying children” under 13, s Individuals who are physically or mentally incapable Individuals of self-care and qualifying as a dependent, of s Spouse who is physically or mentally incapable of Spouse caring for himself or herself. caring s 7 Non-refundable Credits s Child and Dependent Care Credit s Available for “Employment Related Expenses” related Available to care of a dependent for which the TP maintains a household household s Amount of the Credit: 35% with AGI below $15,000 Amount (reduced to 20% once AGI > $43,000) of employment related expenses related s Credit Limitations = Lesser of: s Earned Income s $3,000 for one individual, $6,000 for two or more $3,000 individuals 8 Non-refundable Credits s Hope Scholarship and Lifetime Learning Credits Hope (Sec. 25A) (Sec. s Elective credits for educational expenses paid after Elective 1/1/98 1/1/98 s Credits are allowed for qualifying tuition and related Credits expenses (not including room/board, books, activity fees) paid for one’s self, spouse, or dependent fees) s If a student is eligible for both credits in the same If year, either credit may be chosen, but not both. year, 9 Non-refundable Credits s Hope Scholarship Credit s s s Available only for first two years of post secondary education Must be at least a 1/2 time student Credit is 100% of first $1,200 of expenses paid, 50% of next $1,200 in expenses, per student, per year (maximum credit per student is $1,800) s Lifetime Learning Credit s s s s Available in all years, including post-graduate education Not required to be a 1/2 time student Credit is 20% of the first $10,000 of expenses paid per year by a TP for self, spouse, and dependents (maximum annual credit is $2,000) Not available to student if claimed as a dependent (parents claim credit) s Phase-out of Credits s s s Begins if AGI exceeds $50,000 ($100,000 MFJ) 2008- $48,000/96,000 Completely phased out at $60,000 ($120,000 MFJ) 200858,000/116,000 No Credit if filing MFS 10 American Opportunity Tax Credit s American Opportunity Tax Credit for 2009: s s s s Available only for all FOUR years of post secondary education Adds course materials to “qualifying expenditures” Must be at least a 1/2 time student Credit is 100% of first $2,000 of expenses paid, 25% of next $2,000 in expenses, per student, per year Maximum credit per student is $2,500 -Tuition paid in 2008 for a 2009 semester qualifies only for a 2008 credit under the prior law. s s Phase-out of Credits s s s Begins if AGI exceeds $80,000 ($160,000 MFJ) Completely phased out at $90,000 ($180,000 MFJ) No Credit if filing MFS 11 ...
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This note was uploaded on 06/06/2011 for the course ACE 346 taught by Professor Peter during the Spring '11 term at University of Illinois, Urbana Champaign.

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