Daily Almanac for
Feb 8, 2012
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Credits

Taxpayers can reduce their income tax liability by claiming the benefit of certain tax credits. Each dollar of tax credit offsets a dollar of tax liability. The following are a few of the available tax credits.

Certain low income households may claim an Earned Income Credit. The maximum Earned Income Credit for 2007 was $428 for taxpayers with no qualifying children, $2,853 for taxpayers with one qualifying child, and $4,716 for taxpayers with two or more qualifying children. In order to qualify for the credit, taxpayers must have adjusted gross income of less than $37,783 ($39,783 if married filing jointly) with two or more qualifying children; $33,241 ($35,241 if married filing jointly) with one qualifying child; and $12,590 ($14,590 if married filing jointly) with no qualifying children. The earned income credit is a refundable credit.

A credit for Child and Dependent Care Expenses is available for amounts paid to care for a qualifying child or other dependent so that the taxpayer can work or look for work. The credit is up to 35% (depending on adjusted gross income) of up to $3,000 of employment-related expenses for one qualifying child or dependent and up to $6,000 of employment-related expenses for two qualifying individuals.

The elderly and those under 65 who are retired under total disability may be entitled to a credit of up to $750 (if single) or $1,125 (if married and filing jointly). No credit is available if the taxpayer is single and has adjusted gross income of $17,500 or more. Similarly, the credit is unavailable to a married couple filing jointly if their adjusted gross income exceeds $25,000.

Effective for tax years beginning after Dec. 1, 1997, taxpayers who have qualifying children for whom the taxpayer may claim a dependency exemption and who are less than 17 years old as of the close of the tax year are entitled to the child tax credit. The amount of the credit for 2007 was $1,000. The child credit begins to phase out when AGI reaches $110,000 for joint filers and $75,000 for singles. Taxpayers who have three or more qualifying children may also be entitled to an additional credit.


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