1. Personal Credits from Chapter 14

2. © 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

3. © 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

4. © 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 1998

5. © 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”

6. © 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

7. © 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)

8. © Copyright 2007 by M. Ray Gregg. All rights reserved. 8 Child Care Credit Limits –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

9. © 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)

10. © Copyright 2007 by M. Ray Gregg. All rights reserved. 10 Child Care Credit Formula “ERE” x “Rate” = Credit

11. © Copyright 2007 by M. Ray Gregg. All rights reserved. 11 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income

12. © Copyright 2007 by M. Ray Gregg. All rights reserved. 12 Child Care Credit Rate 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

13. © Copyright 2007 by M. Ray Gregg. All rights reserved. 13 Thursday After Exam Bonus RP-3 due RP-4 due on Thursday –Encouraged to work earlier (review for exam) –Encouraged to use software Go over exam Go over calendar revisions Begin new material

14. © Copyright 2007 by M. Ray Gregg. All rights reserved. 14 Child Care Credit Problem 14-50, page 14-40

15. © Copyright 2007 by M. Ray Gregg. All rights reserved. 15 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income 14-50 a.

16. © Copyright 2007 by M. Ray Gregg. All rights reserved. 16 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” 14-50 a. $ 9,000 $ 6,000 $14,000 Actual Maximum Spouse’s Smaller Income

17. © Copyright 2007 by M. Ray Gregg. All rights reserved. 17 Child Care Credit Formula $6,000 x “Rate” = Credit “ERE” 14-50 a. Actual Maximum Spouse’s Smaller Income $ 6,000

18. © Copyright 2007 by M. Ray Gregg. All rights reserved. 18 Child Care Credit Formula $6,000 x “Rate” = Credit “ERE” 14-50 a. Actual Maximum Spouse’s Smaller Income

19. © Copyright 2007 by M. Ray Gregg. All rights reserved. 19 Child Care Credit Rate 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

20. © Copyright 2007 by M. Ray Gregg. All rights reserved. 20 Child Care Credit Rate 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

21. © Copyright 2007 by M. Ray Gregg. All rights reserved. 21 Child Care Credit Formula $6,000 x 20% = Credit “ERE” 14-50 a. Actual Maximum Spouse’s Smaller Income

22. © Copyright 2007 by M. Ray Gregg. All rights reserved. 22 Child Care Credit Formula $6,000 x 20% = $1,200 “ERE” 14-50 a. Actual Maximum Spouse’s Smaller Income

23. © Copyright 2007 by M. Ray Gregg. All rights reserved. 23 Child Care Credit Problem 14-50, page 14-40 a.$1,200 b.Mother?

24. © Copyright 2007 by M. Ray Gregg. All rights reserved. 24 Child Care Credit Problem 14-50, page 14-40 a.$1,200 b.$1,200

25. © Copyright 2007 by M. Ray Gregg. All rights reserved. 25 Problem 14 - 50, c.

26. © Copyright 2007 by M. Ray Gregg. All rights reserved. 26 Problem 14 - 50, c. Formula “ERE” x “Rate” = Credit

27. © Copyright 2007 by M. Ray Gregg. All rights reserved. 27 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $8,000? $6,000? single

28. © Copyright 2007 by M. Ray Gregg. All rights reserved. 28 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $8,000? $6,000? single $4,000

29. © Copyright 2007 by M. Ray Gregg. All rights reserved. 29 Actual Maximum Spouse’s Smaller Income $3,000 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” $3,000 $6,000? single

30. © Copyright 2007 by M. Ray Gregg. All rights reserved. 30 Problem 14 - 50, c. Amt Pd$4,000 Prev Benefit 1,000 Amt of ERE$3,000

31. © Copyright 2007 by M. Ray Gregg. All rights reserved. 31 $4,000 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $8,000? $6,000? single $3,000

32. © Copyright 2007 by M. Ray Gregg. All rights reserved. 32 Problem 14 - 50, c. Amt Pd$4,000 Prev Benefit 1,000 Amt of ERE$3,000 BUT LIMITED TO Max for One$3,000 Prev Benefit 1,000 Amt Qualified ERE$2,000

33. © Copyright 2007 by M. Ray Gregg. All rights reserved. 33 Problem 14 - 50, c. Amt Pd$4,000 Prev Benefit 1,000 Amt of ERE$3,000 BUT LIMITED TO Max for One$3,000 Prev Benefit 1,000 Amt Qualified ERE$2,000

34. © Copyright 2007 by M. Ray Gregg. All rights reserved. 34 Actual Maximum Spouse’s Smaller Income $3,000 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” $3,000 $6,000? single $2,000

35. © Copyright 2007 by M. Ray Gregg. All rights reserved. 35 Problem 14 - 50, c. Formula 2,000 x “Rate” = Credit

36. © Copyright 2007 by M. Ray Gregg. All rights reserved. 36 Child Care Credit Rate 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

37. © Copyright 2007 by M. Ray Gregg. All rights reserved. 37 Problem 14 - 50, c. Max35% Less:?? ?

38. © Copyright 2007 by M. Ray Gregg. All rights reserved. 38 Problem 14 - 50, c. His AGI$27,000 Base 15,000 Excess$12,000 Then: 12,000 2,000 6

39. © Copyright 2007 by M. Ray Gregg. All rights reserved. 39 Problem 14 - 50, c. Max35% Less: 6% His Rate29%

40. © Copyright 2007 by M. Ray Gregg. All rights reserved. 40 Problem 14 - 50, c. Formula 2,000 x “Rate” = Credit

41. © Copyright 2007 by M. Ray Gregg. All rights reserved. 41 Problem 14 - 50, c. Formula 2,000 x 29% = Credit

42. © Copyright 2007 by M. Ray Gregg. All rights reserved. 42 Problem 14 - 50, c. Formula 2,000 x 29% = $580

43. © Copyright 2007 by M. Ray Gregg. All rights reserved. 43 Problem 14 - 50, d.

44. © Copyright 2007 by M. Ray Gregg. All rights reserved. 44 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $5,000 $6,000 $4,000 14-50 d.

45. © Copyright 2007 by M. Ray Gregg. All rights reserved. 45 Child Care Credit Formula $4,000 x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $5,000 $6,000 $4,000 14-50 d.

46. © Copyright 2007 by M. Ray Gregg. All rights reserved. 46 Child Care Credit Formula $4,000 x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $5,000 $6,000 $4,000 14-50 d.

47. © Copyright 2007 by M. Ray Gregg. All rights reserved. 47 Child Care Credit Formula $4,000 x 20% = Credit “ERE” Actual Maximum Spouse’s Smaller Income $5,000 $6,000 $4,000 14-50 d.

48. © Copyright 2007 by M. Ray Gregg. All rights reserved. 48 Child Care Credit Formula $4,000 x 20% = $800 “ERE” Actual Maximum Spouse’s Smaller Income $5,000 $6,000 $4,000 14-50 d.

49. © Copyright 2007 by M. Ray Gregg. All rights reserved. 49 Problem 14 - 50, e.

50. © Copyright 2007 by M. Ray Gregg. All rights reserved. 50 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $7,000 $6,000 $ -0-0 14-50 e. Pick Which?

51. © Copyright 2007 by M. Ray Gregg. All rights reserved. 51 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $7,000 $6,000 $ -0-0 14-50 e. Smallest

52. © Copyright 2007 by M. Ray Gregg. All rights reserved. 52 Child Care Credit Formula “ERE” x “Rate” = Credit “ERE” Actual Maximum Spouse’s Smaller Income $7,000 $6,000 $ -0-0 14-50 e. Exception?

53. © Copyright 2007 by M. Ray Gregg. All rights reserved. 53 Child Care Credit Formula “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

54. © Copyright 2007 by M. Ray Gregg. All rights reserved. 54 Child Care Credit Formula “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

55. © Copyright 2007 by M. Ray Gregg. All rights reserved. 55 Child Care Credit Formula $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

56. © 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

57. © Copyright 2007 by M. Ray Gregg. All rights reserved. 57 Problem 14 - 24

58. © Copyright 2007 by M. Ray Gregg. All rights reserved. 58 Problem 14 - 24 Formula “ERE” x “Rate” = Credit

59. © Copyright 2007 by M. Ray Gregg. All rights reserved. 59 Problem 14 - 24 Amt Pd$7,000 Prev Benefit 4,000 Amt of ERE$3,000 BUT LIMITED TO Max for Two$6,000 Prev Benefit 4,000 Amt Qualified ERE$2,000

60. © Copyright 2007 by M. Ray Gregg. All rights reserved. 60 Problem 14 - 24 Amt Pd$7,000 Prev Benefit 4,000 Amt of ERE$3,000 BUT LIMITED TO Max for Two$6,000 Prev Benefit 4,000 Amt Qualified ERE$2,000

61. © Copyright 2007 by M. Ray Gregg. All rights reserved. 61 Problem 14 - 24 Formula 2,000 x “Rate” = Credit

62. © Copyright 2007 by M. Ray Gregg. All rights reserved. 62 Child Care Credit Rate 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

63. © Copyright 2007 by M. Ray Gregg. All rights reserved. 63 Problem 14 - 24 Max35% Less:?? ?

64. © Copyright 2007 by M. Ray Gregg. All rights reserved. 64 Problem 14 - 24 Her AGI$24,500 Base 15,000 Excess$ 9,500 Then: 9,500 2,000 4.755 “or portion thereof”

65. © Copyright 2007 by M. Ray Gregg. All rights reserved. 65 Problem 14 - 24 Her AGI$24,500 Base 15,000 Excess$ 9,500 Then: 9,500 2,000 4.755 “or portion thereof”

66. © Copyright 2007 by M. Ray Gregg. All rights reserved. 66 Problem 14 - 24 Max35% Less: 5% Her Rate30%

67. © Copyright 2007 by M. Ray Gregg. All rights reserved. 67 Problem 14 - 24 Formula 2,000 x “Rate” = Credit

68. © Copyright 2007 by M. Ray Gregg. All rights reserved. 68 Problem 14 - 24 Formula 2,000 x 30% = Credit

69. © Copyright 2007 by M. Ray Gregg. All rights reserved. 69 Problem 14 - 24 Formula 2,000 x 30% = $600

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

71. © Copyright 2007 by M. Ray Gregg. All rights reserved. 71 Form 1040, Page 2, line 53 (’06) Text pages 2-8 and 2-9

72. © Copyright 2007 by M. Ray Gregg. All rights reserved. 72 Form 1040, Page 2, line 52 (’07) Text pages 2-8 and 2-9 This is the form for 07 for next time.

73. © 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 ??

74. © Copyright 2007 by M. Ray Gregg. All rights reserved. 74 Extra Child Tax Credit Form 1040, page 2, line 68

75. © 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

76. © 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”

77. © Copyright 2007 by M. Ray Gregg. All rights reserved. 77 Earned Income Credit Page 14-26 “Negative Income Tax”

78. © Copyright 2007 by M. Ray Gregg. All rights reserved. 78 EIC Not Among Credits! Text page 2 - 9

79. © Copyright 2007 by M. Ray Gregg. All rights reserved. 79 Earned Income Credit Refundable Text page 2 - 9

80. © 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)

81. © Copyright 2007 by M. Ray Gregg. All rights reserved. 81 Earned Income Credit E I x % = credit

82. © Copyright 2007 by M. Ray Gregg. All rights reserved. 82 Table 14 – 2, pg 14 - 27 Number of Qual 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$2,853 Two or More Children 40.0%$11,790$4,716 2007 Earned Income Credit Table

83. © Copyright 2007 by M. Ray Gregg. All rights reserved. 83 Earned Income Credit E I x % = credit Phase Out: Tentative Credit $xxx Less: Excess of Larger of EI or AGI over Phase-out amount x % from table x Allowable Credit $ xx

84. © Copyright 2007 by M. Ray Gregg. All rights reserved. 84 Table 14 – 3, pg 14 - 28 Number of Qual Children Phase-Out Begins at … Phase-Out Percentage Phase-Out Ends at … Married No Children $9,0007.65%$14,590 One Child $17,39015.98%$35,241 Two or More Children $17,39021.06%$39,783 All Others No Children $7,0007.65%$12,590 One Child $15,39015.98%$33,241 Two or More Children $15,39021.06%$37,783 2007 Earned Income Credit Phase-Out Table

85. © 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)

86. © Copyright 2007 by M. Ray Gregg. All rights reserved. 86 Problem 14 - 59 E I x % = credit $12,000 x 34% = $???

87. © Copyright 2007 by M. Ray Gregg. All rights reserved. 87 Problem 14 - 59 E I x % = credit Phase Out: Tentative Credit $2,853 Less: Larger of EI or AGI $16,000 Phase-out table amt 15,390 $ 610 x.1598 97 Allowable Credit $2,756 $8,390 x 34% = $2,853

88. © Copyright 2007 by M. Ray Gregg. All rights reserved. 88 Problem 14 - 59 EIC Tables (page 51)

89. © 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)

90. © Copyright 2007 by M. Ray Gregg. All rights reserved. 90 Problem 14 - 60 E I x % = credit $8,000 x 7.65% = $???

91. © 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 $428 Less: Larger of EI or AGI $8,000 Phase-out table amt 7,000 $1,000 x.0765 77 Allowable Credit $351

92. © Copyright 2007 by M. Ray Gregg. All rights reserved. 92 Problem 14 - 60 EIC Tables (page 53)

93. © Copyright 2007 by M. Ray Gregg. All rights reserved. 93 Problem 14 - 60 c. Yes (it is refundable)

94. © 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.

95. © Copyright 2007 by M. Ray Gregg. All rights reserved. 95