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Family Responsibilities Outline

Law Outlines > U.S. Income Tax Law Outlines

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FAMILY RESPONIBILITES A. Family Expenses i. Two basic categories a. Child care expenses -based on actual expenditures (SS21) b. Credits based on just having kids B. Household and Dependent Care Expenses Credits (SS21) i. Fixes part of the two-income couple problem ii. Allows taxpayer to deduct up to 35% of up to $3000 for child-care if the expense allows him/her to be employed (but the amount of expenses can't exceed the income of either spouse---i.e. if either spouse has less than $3K income) a. If AGI is $15K or less, credit is 35% of qualifying expenses, rate of credit reduced by 1% for each $2K by which AGI>15K, but never reduced to below 20%, everyone above $45K income gets 20%. b. Applies to dependents younger than 13, or who are physically or mentally incapable of caring for themselves (includes spouse who is a FT student) c. Can include some expenses outside the home such as qualifying daycare (21(b)) but not sleep-away camp d. Can report up to $6000 expenses if two or more children (21(c)) e. Allocation: Household expenses such as housekeeper that are partially for care of the child should be allocated b/w the credit and not (Reg 1.21-1(d) p 1008 in supp). iii. Use of credit, rather than deduction, and income-adjusted cap on eligible shows Congress meant it to be a subsidy for low-income earners iv. School: a. Regs 21-1d---covers below kindergarten, but once we get above kindergarten, starts to look like private school, so that doesn't count. C. Child Tax Credits (SS24) i. $1000 per child under age 17 ii. Phases out starting at $110K for married, $75K for individual. For every
$1K or fraction thereof above the thresholds, reduces credit by $50 iii. Political compromise partial refundability: The credit is refundable to the extent of 15% of the amount by which earned income is over $10K (indexed to inflation). a. So, for example, if income is $14K, then 15% of $4k, or $600 is refundable b. Increase in amount refundable as income increases helps to offset the phase-out in EITC as income increases. Also, the credit (except for the phase-out) does not vary with income levels, so not subject to criticism of SS151 exemptions that higher-income earners benefit more. D. SS129 Excludes employer-provided dependent care assistance programs, under most conditions [NOT ASSIGNED]. E. EITC (SS32)---VERY COMPLICATED; WE'LL ONLY BE TESTED ON POLICY, NOT ON MECHANICS i. Conditioned on earning income

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