Trey has two dependents, his daughters, ages 14 and 17, at year-end. Trey files
ID: 2328570 • Letter: T
Question
Trey has two dependents, his daughters, ages 14 and 17, at year-end. Trey files a joint return with his wife. What amount of child credit will Trey be able to claim for his daughters under each of the following alternative situations? Use Exhibit 8-8.
a. His AGI is $108,800.
b. His AGI is $422,000.
c. His AGI is $426,700, and his daughters are ages 10 and 12.
EXHIBIT 8-8 Child Tax Credit Phase-Out Threshold Filing Status Phase-Out Threshold Married filing jointly Married filing separately I kyad of houshold ard sigk $400,000 200,000 200,000Explanation / Answer
Condition to claim the Child Tax Credit
One of the major conditions to claim the Child Tax Credit is the "age"of the dependents. The age of the Child the taxpayer is claiming as his or her dependents shall be below the age of 17 years at the end of Tax Year. Means the age shall be 16 years or Less at the end of the tax year.
How much a taxpayer cam claim child Tax Credit?
A Taxpayer can claim a maximum of $2,000 per dependent Child as Child Tax Credit.
Phasing Out: The phasing out of the Child Tax Credit will begin once the AGI crosses $400,000 (if the filing status is married filing jointly). For each $1,000 earned over AGI of amount $400,000, the Child Tax Credit will be reduced by $50.
Case a
Name of the Taxpayer = Trey
Tax Year = 2018
Tax Filing year = 2019
AGI - $108,800
Age of the first dependent = 14 years
Age of the Second dependent = 17 years
Tax return filing status - Married Filing Jointly
Analysis:
Since the age of the first dependent is under 17 years, Trey is eligible to claim Child Tax Credit of upto $2,000.
However since the age of second dependent is 17 years which is not under the age of 17 years, Trey is not eligible to claim the Child Tax Credit for his 2nd dependent child.
Since the AGI of Trey is less than $400,000, Trey can claim upto $2,000 as Child Tax Credit for first dependent.
Conclusion: Total Child Tax Credit Trey is eligible to Claim is $2,000.
Case b
Name of the Taxpayer = Trey
Tax Year = 2018
Tax Filing year = 2019
AGI - $422,000
Age of the first dependent = 14 years
Age of the Second dependent = 17 years
Tax return filing status - Married Filing Jointly
Analysis:
Since the age of the first dependent is under 17 years, Trey is eligible to claim Child Tax Credit of upto $2,000.
However since the age of second dependent is 17 years which is not under the age of 17 years, Trey is not eligible to claim the Child Tax Credit for his 2nd dependent child.
Total Child Tax Credit is $2,000
However Since the AGI of Trey is more than $400,000, Child Tax Credit will be phased out. For each $1,000 earned over 400,000, the Child Tax Credit would be reduced by $50. Therefore, SInce the AGI is more than $400,000 by 22,000 ($1,000 x 22), the child tax credit would be reduced by 1,100 ($50 x 22). So trey is eligible to Claim maximum of $900 ($2,000 - $1,100) as Child Tax Credit.
Conclusion: Total Child Tax Credit Phase-out Threshold = $900
Case c
Name of the Taxpayer = Trey
Tax Year = 2018
Tax Filing year = 2019
AGI - $426,700
Age of the first dependent = 10 years
Age of the Second dependent = 12 years
Tax return filing status - Married Filing Jointly
Analysis:
Since the age of the first dependent is 10 years which is under the age of 17 years, Trey is eligible to claim maximum of Child Tax Credit of $2,000.
Since the age of second dependent is 12 years which is under the age of 17 years, Trey is eligible to claim maximum of Child Tax Credit of $2,000
Total Child Tax Credit threshold before phased-out = $4,000
However Since the AGI of Trey is more than $400,000, Child Tax Credit will be Phased-out. For each $1,000 earned over 400,000, the Child Tax Credit would be reduced by $50. Therefore, SInce the AGI is more than $400,000 by 26,000 ($1,000 x 26), the child tax credit would be reduced by 1,300 ($50 x 26).
So trey is eligible to Claim maximum of $2,700 ($4,000 - $1,300) as Child Tax Credit after phase-Out
Conclusion: Total Child Tax Credit Phase-out Threshold = $2,700
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