Another feature of the Child Tax Credit that's necessary information for those with tax preparer assurance is the income limitation for taxpayers claiming the credit. The credit is phased out for taxpayers with customized adjusted gross incomes in excess of $110,000 for those who are married filing together, $55,000 for those married filing separately, and $75,000 for those with any other filing status. Modified adjusted gross income for the CTC calculation is frequently the same as adjusted gross income AGI.
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A. Earned Income Credit
The Earned Income Tax Credit (EITC) can be use for the basis of building wealth:
Here is how it workings;
If you have at rent one child that lives with you over half the year, you may be qualified for this credit. It is set up so that the more cash you earn, the higher the credit until you reach an income of $8,050 for one child or $11,300 for two or more children. The credit peeks at $2,747 for one child and $4,536 for two or more children. Therefore the credit can add to your income by 34% to 40%.
The credit then levels off then decreases as income increases but don't stop striving to increase your earned income. Other credits come into play that I will show you latter that will assist make up for the decrease in the earned income credit.
In this first example we can see how much a family of four may benefit from the. (EITC)
Income $16,000
Tax 0
Earned income credit 4,280
Total income $20,280
The (EITC) increases family income by $4,280 or about 25%
This lump-sum payment can become the basis for building wealth. Here are a few suggestions:
1. This lump sum can go a long way toward closing costs on a home purchase.
2. The IRS will permit you to receive up to half the credit along with your normal paycheck, when you complete a form W5. In this way the tax structure helps you with the house payments.
3. The expense can be contributed toward a Roth IRA that can grow tax free for future requirements.
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