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© Copyright 2007 by M. Ray Gregg. All rights reserved. 3 Personal Credits Child Care Credit Child Tax Credit HOPE Scholarship Credit Lifetime Learning Credit Earned Income Credit Updated (finally!) in 2003
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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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 3
Personal Credits
• Child Care Credit• Child Tax Credit• HOPE Scholarship Credit• Lifetime Learning Credit• Earned Income Credit
Updated(finally!)in 2003
© Copyright 2007 by M. Ray Gregg. All rights reserved. 4
Personal Credits
• Child Care Credit• Child Tax Credit• HOPE Scholarship Credit• Lifetime Learning Credit• Earned Income Credit
New
New
New
1998
© Copyright 2007 by M. Ray Gregg. All rights reserved. 5
Personal Credits
• Child Care Credit• Child Tax Credit• HOPE Scholarship Credit• Lifetime Learning Credit• Earned Income Credit
“Improved”
© Copyright 2007 by M. Ray Gregg. All rights reserved. 6
Personal Credits
• Child Care Credit• Child Tax Credit• HOPE Scholarship Credit• Lifetime Learning Credit• Earned Income Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 7
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)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 8
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 9
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)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 10
Child Care CreditFormula“ERE” x “Rate” = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 11
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
© Copyright 2007 by M. Ray Gregg. All rights reserved. 12
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 15
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
14-50 a.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 16
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”
14-50 a.
$ 9,000$ 6,000$14,000
•Actual•Maximum•Spouse’s Smaller Income
© Copyright 2007 by M. Ray Gregg. All rights reserved. 17
Child Care CreditFormula$6,000 x “Rate” = Credit“ERE”
14-50 a.
•Actual•Maximum•Spouse’s Smaller Income
$ 6,000
© Copyright 2007 by M. Ray Gregg. All rights reserved. 18
Child Care CreditFormula$6,000 x “Rate” = Credit“ERE”
14-50 a.
•Actual•Maximum•Spouse’s Smaller Income
© Copyright 2007 by M. Ray Gregg. All rights reserved. 19
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 20
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 21
Child Care CreditFormula$6,000 x 20% = Credit“ERE”
14-50 a.
•Actual•Maximum•Spouse’s Smaller Income
© Copyright 2007 by M. Ray Gregg. All rights reserved. 22
Child Care CreditFormula$6,000 x 20% = $1,200“ERE”
14-50 a.
•Actual•Maximum•Spouse’s Smaller Income
© Copyright 2007 by M. Ray Gregg. All rights reserved. 25
Problem 14 - 50, c.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 26
Problem 14 - 50, c.Formula“ERE” x “Rate” = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 27
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$8,000?$6,000?single
© Copyright 2007 by M. Ray Gregg. All rights reserved. 28
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$8,000?$6,000?single
$4,000
© Copyright 2007 by M. Ray Gregg. All rights reserved. 29
•Actual•Maximum•Spouse’s Smaller Income
$3,000
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”
$3,000$6,000?single
© Copyright 2007 by M. Ray Gregg. All rights reserved. 30
Problem 14 - 50, c.Amt Pd $4,000Prev Benefit 1,000Amt of ERE $3,000
© Copyright 2007 by M. Ray Gregg. All rights reserved. 31
$4,000
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$8,000?$6,000?single
$3,000
© Copyright 2007 by M. Ray Gregg. All rights reserved. 32
Problem 14 - 50, c.Amt Pd $4,000Prev Benefit 1,000Amt of ERE $3,000
BUT LIMITED TOMax for One $3,000Prev Benefit 1,000Amt Qualified ERE $2,000
© Copyright 2007 by M. Ray Gregg. All rights reserved. 33
Problem 14 - 50, c.Amt Pd $4,000Prev Benefit 1,000Amt of ERE $3,000
BUT LIMITED TOMax for One $3,000Prev Benefit 1,000Amt Qualified ERE $2,000
© Copyright 2007 by M. Ray Gregg. All rights reserved. 34
•Actual•Maximum•Spouse’s Smaller Income
$3,000
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”
$3,000$6,000?single
$2,000
© Copyright 2007 by M. Ray Gregg. All rights reserved. 35
Problem 14 - 50, c.Formula2,000 x “Rate” = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 36
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 37
Problem 14 - 50, c.Max 35%Less: ?? ?
© Copyright 2007 by M. Ray Gregg. All rights reserved. 38
Problem 14 - 50, c.His AGI $27,000Base 15,000Excess $12,000Then:
12,0002,0006
© Copyright 2007 by M. Ray Gregg. All rights reserved. 39
Problem 14 - 50, c.Max 35%Less: 6%His Rate 29%
© Copyright 2007 by M. Ray Gregg. All rights reserved. 40
Problem 14 - 50, c.Formula2,000 x “Rate” = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 41
Problem 14 - 50, c.Formula2,000 x 29% = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 42
Problem 14 - 50, c.Formula2,000 x 29% = $580
© Copyright 2007 by M. Ray Gregg. All rights reserved. 43
Problem 14 - 50, d.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 44
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$5,000$6,000$4,000
14-50 d.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 45
Child Care CreditFormula$4,000 x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$5,000$6,000$4,000
14-50 d.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 46
Child Care CreditFormula$4,000 x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$5,000$6,000$4,000
14-50 d.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 47
Child Care CreditFormula$4,000 x 20% = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$5,000$6,000$4,000
14-50 d.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 48
Child Care CreditFormula$4,000 x 20% = $800“ERE”•Actual•Maximum•Spouse’s Smaller Income
$5,000$6,000$4,000
14-50 d.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 49
Problem 14 - 50, e.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 50
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$7,000$6,000
$ -0-0
14-50 e.
Pick Which?
© Copyright 2007 by M. Ray Gregg. All rights reserved. 51
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$7,000$6,000
$ -0-0
14-50 e.
Smallest
© Copyright 2007 by M. Ray Gregg. All rights reserved. 52
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$7,000$6,000
$ -0-0
14-50 e.
Exception?
© Copyright 2007 by M. Ray Gregg. All rights reserved. 53
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$7,000$6,000
$ -0-0
14-50 e.
Impute income@ $500/mo
for f-t student
© Copyright 2007 by M. Ray Gregg. All rights reserved. 54
Child Care CreditFormula“ERE” x “Rate” = Credit“ERE”•Actual•Maximum•Spouse’s Smaller Income
$7,000$6,000$5,000
14-50 e.
$500 x 10 = $5,000
© Copyright 2007 by M. Ray Gregg. All rights reserved. 55
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 56
Child Care Credit
• Problem 14-50, page 14-40• Problem 14-24, page 14-37
Child Tax Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 57
Problem 14 - 24
© Copyright 2007 by M. Ray Gregg. All rights reserved. 58
Problem 14 - 24Formula“ERE” x “Rate” = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 59
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 60
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 61
Problem 14 - 24Formula2,000 x “Rate” = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 62
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 63
Problem 14 - 24Max 35%Less: ?? ?
© Copyright 2007 by M. Ray Gregg. All rights reserved. 64
Problem 14 - 24Her AGI $24,500Base 15,000Excess $ 9,500Then:
9,5002,0004.75 5
“or portion thereof”
© Copyright 2007 by M. Ray Gregg. All rights reserved. 65
Problem 14 - 24Her AGI $24,500Base 15,000Excess $ 9,500Then:
9,5002,0004.75 5
“or portion thereof”
© Copyright 2007 by M. Ray Gregg. All rights reserved. 66
Problem 14 - 24Max 35%Less: 5%Her Rate 30%
© Copyright 2007 by M. Ray Gregg. All rights reserved. 67
Problem 14 - 24Formula2,000 x “Rate” = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 68
Problem 14 - 24Formula2,000 x 30% = Credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 69
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)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 71
Form 1040, Page 2, line 53 (’06)
Text pages 2-8 and 2-9
© Copyright 2007 by M. Ray Gregg. All rights reserved. 73
Child Tax Credit• Exceptions:
– Too much income? Phased out– Too little income?
Or > 3 children?•Additional credit may
be refundable•?? RP-4 ??
© Copyright 2007 by M. Ray Gregg. All rights reserved. 74
Extra Child Tax Credit
Form 1040, page 2, line 68
© Copyright 2007 by M. Ray Gregg. All rights reserved. 75
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 76
Lifetime Learning Credit
• Page 14-16• New in ’98• 20% of 10,000 per taxpayer• Similar requirements as HOPE• No “double-dipping”
© Copyright 2007 by M. Ray Gregg. All rights reserved. 77
Earned Income Credit
• Page 14-26• “Negative Income Tax”
© Copyright 2007 by M. Ray Gregg. All rights reserved. 78
EIC Not Among Credits!
Text page 2 - 9
© Copyright 2007 by M. Ray Gregg. All rights reserved. 79
Earned Income Credit
Refundable
Text page 2 - 9
© Copyright 2007 by M. Ray Gregg. All rights reserved. 80
Earned Income Credit
• Page 14-26• “Negative Income Tax”• Refundable• Tables 14-2 and 14-3,
pp 14-27,28
EIC Tables(page 53)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 81
Earned Income Credit
E I x % = credit
© Copyright 2007 by M. Ray Gregg. All rights reserved. 82
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 83
Earned Income Credit
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 84
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 85
Earned Income Credit
• 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)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 86
Problem 14 - 59
E I x % = credit$12,000 x 34% = $???
© Copyright 2007 by M. Ray Gregg. All rights reserved. 87
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 88
Problem 14 - 59
EIC Tables(page 51)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 89
Earned Income Credit
• 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)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 90
Problem 14 - 60
E I x % = credit$8,000 x 7.65% = $???
© Copyright 2007 by M. Ray Gregg. All rights reserved. 91
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
© Copyright 2007 by M. Ray Gregg. All rights reserved. 92
Problem 14 - 60
EIC Tables(page 53)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 93
Problem 14 - 60c. Yes (it is refundable)
© Copyright 2007 by M. Ray Gregg. All rights reserved. 94
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.
© Copyright 2007 by M. Ray Gregg. All rights reserved. 95