INDIVIDUAL FEDERAL INCOME TAXES

TAX CREDITS

CHILD TAX CREDIT:

You may generally claim a tax credit of $1,000 for each qualifying child who is under age 17 at the end of the year. A qualifying child includes your child, stepchild, grandchild, great-grandchild, brother, sister, stepbrother, stepsister, half-brother or –sister, or the descendant of any of these.

The credit is limited or eliminated if your modified adjusted gross income (MAGI) is above a threshold amount for your filing status. The credit is reduced by $50 for each $1,000 of MAGI above:

$110,000 for married filing jointly
$75,000 for single, head of household and qualifying widow
$55,000 for married filing separately

If any part of the regular child tax credit was not used because the tax was reduced to zero, taxpayers may claim an additional credit. The maximum additional child tax credit for taxpayers with one or two children is the lesser of the disallowed portion of the regular child tax credit or 15% of earned income over $3,000.

The maximum additional credit for taxpayers with three or more children is the lesser of the disallowed portion of the regular child tax credit or the larger of 15% of earned income over $3,000 or FICA and Medicare tax paid minus earned income credit.

EARNED INCOME CREDIT:

The Earned Income Credit (EIC) is a refundable credit for low-income earners. It may be claimed not only by workers with qualifying children but also in limited cases by childless workers. To quality, the following requirements must be met:

Taxpayer’s investment income must be $3,100 or less.

Taxpayer must be a US citizen or resident alien for the entire year.

The filing status may not be married filing separately.

Taxpayers may not be a qualifying child of another taxpayer.

Taxpayers must have earned income.

Taxpayers must include Social Security numbers on their tax return.

Taxpayers cannot file Form 2555.

Additional rules for taxpayers without a qualifying child:

Taxpayer must be at least age 25 but under age 65 at the end of the year.

Taxpayer cannot be a dependent of another person.

Taxpayer must have lived in the US for more than half of the year.

The following table reflects the maximum credit and the earned income
and AIG limit to receive the credit:

	Maximum Credit	Income Limit
With no Children	$457	$13,440*
With 1 Child	$3,043	$35,463*
With 2 Children	$5,028	$40,295*
With 3 or More Children	$5,657	$43,279*

*Increase these amounts by $5,000 for joint returns.

AMERICAN OPPORTUNITY TAX CREDIT (Formerly Hope Credit):

The Hope Credit has been modified for 2009 and 2010 and has been renamed the American Opportunity Credit. Under the new plan, a credit of up to $2,500 is allowed for qualified education expenses paid for each eligible student. It is available for the first four years of college or vocational school.

The credit is 100% of the first $2,000 of qualified expenses and 25% of the next $2,000 of expenses paid for the student. If the student used the two years of eligibility for the Hope credit under the old law, and is still in school and has not yet earned four years worth of academic credit, the modified Hope credit is now available.

Qualified expenses include tuition, fees and course materials but not room and board. The student must carry as least half of a full-time load of credits. The credit is partial refundability. If after offsetting the taxpayer’s regular federal income tax bill and the AMT tax, any additional credit not used is refundable up to 40%.

The phase-out levels are considerable higher than under the old law. For unmarried individuals, the phase-out is between $80,000 and $90,000. For married joint filers the phase-out is between $160,000 and $180,000.

The credit cannot be claimed if the filing status if married filing separate nor can it be claimed if the taxpayer is claimed as a dependent on another person’s tax return.

LIFETIME LEARNING TAX CREDIT:

The lifetime learning credit is 20% of the first $10,000 of qualified education expenses paid for all eligible students. The maximum is $2,000 per return regardless of the number of eligible students. There is no limit on the number of years the credit can be taken. The credit is nonrefundable.

Qualified expenses include tuition and fees but not books, room or board. It is available on behalf of the taxpayer, his or her spouse and dependents.

Income limit phase out is between $50,000 and $60,000 for singles and between $100,000 and $120,000 for joint returns.

The credit cannot be claimed if filing status is married filing separate nor can it be claimed by a taxpayer who is claimed as a dependent on another person’s tax return. The lifetime learning credit and the American

Opportunity credit cannot be claimed for the same student in the same year.