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 $100,000.

Amount of child tax credit

b. His AGI is $420,000.

Amount of child tax credit

c. His AGI is $420,100, and his daughters are ages 10 and 12.

Amount of child tax credit

Answer 1

Child Tax Credit = $2,000 per qualifying child.

The child tax credit get reduced if the modified adjusted gross income (MAGI) exceeds the limit. For each $1,000 of income above threshold, the child tax credit get reduced by $50. The phaseout of credit begins at $400,000 for married filing jointly. For being a qualified child, dependant must be below 17 years old.

a. AGI = $100,000

Child Tax Credit = $2,000 (Trey will not be able to claim child credit for his daughter aged 17)

Since, AGI is below threshold, Trey can claim full tax credit of $2,000 for his one daughter.

b. AGI = $420,000

Amount exceeding threshold = $420,000 - $400,000 = $20,000

Phase out = ($20,000/$1,000) * $50 = $1,000

Child Tax Credit = $2,000 - $1,000 = $1,000

Trey will be able to claim child tax credit of $1,000

c. AGI = $420,100

Amount exceeding threshold = $420,100 - $400,000 = $20,100

Phase out = ($20,100/$1,000) = 20.1 rounded to 21

Phase out = 21 * $50 = $1,050

In this case, Trey will be able to claim child tax credit for both the daughters as both are aged below 17.

Child tax credit = (2 * $2,000) - $1,050 = $2,950

Trey will be able to claim child tax credit of $2,950