Question

Lewis and Sacagewa Clark are married and both have Master's Degrees. The Clarks have three children: Lizette, Louisiana, and Jefferson. Lizette and Louisiana are 10 and 14 respectively. Lizette and Louisana are in a private school where the tuition is $5,000 a year per student. The Clarks also pay $1,000 per year per child for after-school care. Jefferson is 19 and is in his second year at the University of South Carolina on a partial football scholarship. The Clarks paid the remaining portion of Jefferson's tuition not covered by the scholarship, which was $3,000. They also paid for Jefferson's room and board, which was $7,500.

Compute the Clark's net child tax credit if the Clark's earned a salary of $200,000 as tour guides, had an AGI (and modified AGI) of $145,000, and had taxable income of $95,000.

Answer 1

The Child Tax Credit is subject to income phase-outs for taxpayers. The phase-out begins for married taxpayers at $400,000. They can earn this much without losing any of their Child Tax Credit. The phase-out begins for all other taxpayers at $200,000.

Lewis and Sacagewa Clark are married couples and have a modified AGI of $145,000 which comes within the limit of $400,000 hence they are eligible for a child tax credit of $2000 per qualifying dependent child.

A child is called qualifying dependent child if he he/she is 16 years or younger as on 31st December of the tax year.

In the present case Lizette and Louisiana are eligible for child tax credit only of $2000 each.

So, Total Child Tax Credit= $2000*2=$4000

The Clark,s are also eligible for $500 credit for payment of remaining portion of Jefferson tuition fee.It comes under the ambit of Family Tax credit.