Question

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Trey has two dependents, his daughters, ages 14 and 17, at 2020 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.

EXHIBIT 8-8 Child Tax Credit Phase-Out Threshold Filing Status Phase-Out Threshold Married filing jointly $400,000 Married filing separately 200.000 Head of household and single 200,000

a. His AGI is $100,000.

Q: Amount of child tax credit

b. His AGI is $420,000.

Q: Amount of child tax credit

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

Q: Amount of child tax credit

Answer 1

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. Child tax credit= $2,000 per qualifying child The child tax credit gets 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 phase-out of credit begins at $400,000 for married filing jointly. For being a qualified child, dependent 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, AGIis 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 $20,000 Phase out x $50 $1,000 = $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 $20,100 Phase out 20.1 rounded to 21 $1,000 Phase out = 21x $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 = (2x $2,000) – $1,050 = $2,950 Trey will be able to claim child tax credit of $2,950