Personal Credits from Chapter 14. © Copyright 2007 by M. Ray Gregg. All rights reserved. 2 Personal Credits Child Care Credit Child Tax Credit HOPE Scholarship

Personal Credits

from Chapter 14

© Copyright 2007 by M. Ray Gregg. All rights reserved. 2

Personal Credits

• Child Care Credit• Child Tax Credit• HOPE Scholarship Credit• Lifetime Learning Credit• Earned Income Credit


Personal Credits


Updated(finally!)in 2003


Personal Credits


New

New

New

1998


Personal Credits


“Improved”


Personal Credits



Child Care Credit• Page 14-12• Officially:

– “Child and Dependent Care Credit”• Taxpayer(s) must work• Limits

– Age of children– Amount paid (’03)– Income of taxpayer (’03)


Child Care CreditLimits

– Age of children• Under 13 years of age

– Amount paid (’03)• $3,000 ($2,400) for one child• $6,000 ($4,800) for > one child

– Income of taxpayer (’03)• Smaller income• “Imputed” if f-t student


Child Care Credit• Page 14-12• Officially:

– “Child and Dependent Care Credit”• Taxpayer(s) must work• Limits

– Age of children– Amount paid (’03)– Income of taxpayer (’03)


Child Care CreditFormula“ERE” x “Rate” = Credit


Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income


Child Care CreditRate

Max 35%$15,000

Min 20%Max (35%) less (1% for each $2,000 of AGI or portion thereof in excess of $15,000)

$43,000



14-50 a.


Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”

14-50 a.

$ 9,000$ 6,000$14,000

•Actual•Maximum•Spouse’s Smaller Income


Child Care CreditFormula$6,000 x “Rate” = Credit“ERE”

14-50 a.


$ 6,000


Child Care CreditFormula$6,000 x “Rate” = Credit“ERE”

14-50 a.




Max 35%$15,000


$43,000



Max 35%$15,000


$43,000


Child Care CreditFormula$6,000 x 20% = Credit“ERE”

14-50 a.



Child Care CreditFormula$6,000 x 20% = $1,200“ERE”

14-50 a.



Problem 14 - 50, c.


Problem 14 - 50, c.Formula“ERE” x “Rate” = Credit



$8,000?$6,000?single



$8,000?$6,000?single

$4,000



$3,000


$3,000$6,000?single


Problem 14 - 50, c.Amt Pd $4,000Prev Benefit 1,000Amt of ERE $3,000


$4,000


$8,000?$6,000?single

$3,000



BUT LIMITED TOMax for One $3,000Prev Benefit 1,000Amt Qualified ERE $2,000



BUT LIMITED TOMax for One $3,000Prev Benefit 1,000Amt Qualified ERE $2,000



$3,000


$3,000$6,000?single

$2,000


Problem 14 - 50, c.Formula2,000 x “Rate” = Credit



Max 35%$15,000


$43,000


Problem 14 - 50, c.Max 35%Less: ?? ?


Problem 14 - 50, c.His AGI $27,000Base 15,000Excess $12,000Then:

12,0002,0006


Problem 14 - 50, c.Max 35%Less: 6%His Rate 29%


Problem 14 - 50, c.Formula2,000 x “Rate” = Credit


Problem 14 - 50, c.Formula2,000 x 29% = Credit


Problem 14 - 50, c.Formula2,000 x 29% = $580


Problem 14 - 50, d.



$5,000$6,000$4,000

14-50 d.


Child Care CreditFormula$4,000 x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income

$5,000$6,000$4,000

14-50 d.


Child Care CreditFormula$4,000 x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income

$5,000$6,000$4,000

14-50 d.


Child Care CreditFormula$4,000 x 20% = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income

$5,000$6,000$4,000

14-50 d.


Child Care CreditFormula$4,000 x 20% = $800“ERE”•Actual•Maximum•Spouse’s Smaller Income

$5,000$6,000$4,000

14-50 d.


Problem 14 - 50, e.



$7,000$6,000

$ -0-0

14-50 e.

Pick Which?



$7,000$6,000

$ -0-0

14-50 e.

Smallest



$7,000$6,000

$ -0-0

14-50 e.

Exception?



$7,000$6,000

$ -0-0

14-50 e.

Impute income@ $500/mo

for f-t student



$7,000$6,000$5,000

14-50 e.

$500 x 10 = $5,000


Child Care CreditFormula$5,000 x 20% = $1,000“ERE”•Actual•Maximum•Spouse’s Smaller Income

$7,000$6,000$5,000

14-50 e.

$500 x 10 = $5,000


Child Care Credit

• Problem 14-50, page 14-40• Problem 14-24, page 14-37

Child Tax Credit


Problem 14 - 24


Problem 14 - 24Formula“ERE” x “Rate” = Credit


Problem 14 - 24Amt Pd $7,000Prev Benefit 4,000Amt of ERE $3,000

BUT LIMITED TOMax for Two $6,000Prev Benefit 4,000Amt Qualified ERE $2,000


Problem 14 - 24Amt Pd $7,000Prev Benefit 4,000Amt of ERE $3,000

BUT LIMITED TOMax for Two $6,000Prev Benefit 4,000Amt Qualified ERE $2,000


Problem 14 - 24Formula2,000 x “Rate” = Credit



Max 35%$15,000


$43,000


Problem 14 - 24Max 35%Less: ?? ?


Problem 14 - 24Her AGI $24,500Base 15,000Excess $ 9,500Then:

9,5002,0004.75 5

“or portion thereof”


Problem 14 - 24Her AGI $24,500Base 15,000Excess $ 9,500Then:

9,5002,0004.75 5

“or portion thereof”


Problem 14 - 24Max 35%Less: 5%Her Rate 30%


Problem 14 - 24Formula2,000 x “Rate” = Credit


Problem 14 - 24Formula2,000 x 30% = Credit


Problem 14 - 24Formula2,000 x 30% = $600

70© Copyright 2007 by M. Ray Gregg. All rights reserved.

Child Tax Credit• Page 14-11 (also Chap 2)• New in ’98• General rules:

– Was $600 per child under 17– Was to increase to $1,000

over 10 yrs– Was raised to $1,000 in ’03– Generally non-refundable– 1040, line 53 (’06) (page 2-9)


Form 1040, Page 2, line 53 (’06)

Text pages 2-8 and 2-9


Child Tax Credit• Exceptions:

– Too much income? Phased out– Too little income?

Or > 3 children?•Additional credit may

be refundable•?? RP-4 ??


Extra Child Tax Credit

Form 1040, page 2, line 68


HOPE Scholarship Credit• Page 14-15• New in ’98• Limited to first two years of post secondary• Allowed for maximum of 2 years per student• Student must carry at least ½ the normal full-time

load• Up to $1,650 in credit for tuition and related expenses

– Not books, room, board, or activity fees• 100% of first $1,100 and 50% of next $1,100• Qualified amounts must be reduced by scholarships,

etc.• Phased out above certain income amounts


Lifetime Learning Credit

• Page 14-16• New in ’98• 20% of 10,000 per taxpayer• Similar requirements as HOPE• No “double-dipping”


Earned Income Credit

• Page 14-26• “Negative Income Tax”


EIC Not Among Credits!

Text page 2 - 9



Refundable

Text page 2 - 9



• Page 14-26• “Negative Income Tax”• Refundable• Tables 14-2 and 14-3,

pp 14-27,28

EIC Tables(page 53)

http://www.irs.gov/pub/irs-pdf/i1040gi.pdf



E I x % = credit


Table 14 – 2, pg 14 - 27

Number ofQual Children

Basic Percentage

Max Amt of EI for Credit

Max Tentative Cr

No Children 7.65% $5,590 $428

One Child 34.0% $8,390 $2,853Two or More Children 40.0% $11,790 $4,716

2007 Earned Income Credit Table



E I x % = credit

Phase Out:Tentative Credit $xxxLess: Excess of Larger of EI or AGI

over Phase-out amount x % from table xAllowable Credit $ xx


Table 14 – 3, pg 14 - 28Number of

Qual ChildrenPhase-Out

Begins at …Phase-OutPercentage

Phase-OutEnds at …

Married

No Children $9,000 7.65% $14,590One Child $17,390 15.98% $35,241Two or More Children $17,390 21.06% $39,783

All Others

No Children $7,000 7.65% $12,590One Child $15,390 15.98% $33,241Two or More Children $15,390 21.06% $37,783

2007 Earned Income Credit Phase-Out Table



• Page 14-26• “Negative Income Tax”• Refundable• Tables 14-2 and 14-3, pg 14-27• Problem 14-59, page 14-42

EIC Tables(page 53)



Problem 14 - 59

E I x % = credit$12,000 x 34% = $???


Problem 14 - 59

E I x % = credit

Phase Out:Tentative Credit $2,853Less: Larger of EI or AGI $16,000

Phase-out table amt 15,390$ 610

x .1598 97Allowable Credit $2,756

$8,390 x 34% = $2,853


Problem 14 - 59

EIC Tables(page 51)




• Page 14-25• “Negative Income Tax”• Refundable• Tables 14-2 and 14-3, pg 14-26• Problem 14-59, page 14-42• Problem 14-60, page 14-42

EIC Tables(page 53)



Problem 14 - 60

E I x % = credit$8,000 x 7.65% = $???


Problem 14 - 60

E I x % = credit$5,590 x 7.65% = $428

Phase Out:Tentative Credit $428Less: Larger of EI or AGI $8,000

Phase-out table amt 7,000 $1,000

x .0765 77Allowable Credit $351


Problem 14 - 60

EIC Tables(page 53)



Problem 14 - 60c. Yes (it is refundable)


Problem 14 - 60

• What if $3,000 in income from investments?

• NONE allowed• If > $2,900 ($2,800 in ’06) in

“disqualified” income, NO EIC allowed (pg. 14-27)

d.


Documents

Personal Credits from Chapter 14. © Copyright 2007 by M. Ray Gregg. All rights reserved. 2 Personal Credits Child Care Credit Child Tax Credit HOPE Scholarship