Question

Congratulations! You now have a child! (Also, you have a dependent.) What is your tax liability if you file jointly now? Identify how this changes your calculations. How did your tax liability change when you had a child? Why do you think the tax policies do this?

Answer 1

In most cases, payments will range from $300 to $600 for individuals and $600 to $1200 for joint filers. Taxpayers may receive $300 for each qualifying child. Payments could be less, depending on tax liability and Adjusted Gross Income. Phaseout reduction begins at $75,000 for single filers and $150,000 for joint filers.

Examples of how the Economic Stimulus Act of 2008 may affect taxpayers who are married, file a joint return and have children who qualify for the child tax credit payment:

1. Married couple with two children, wages of $4,000, no federal income tax liability before child tax credit.
   
   Rebate is $600
   Qualifying child credit is $600
   TOTAL is $1,200
   
2. Married couple with two children, no wages, veterans’ payments of $2,000, social security benefits of $2,000, no federal income tax liability before child tax credit.
   
   Rebate is $600
   Qualifying child credit is $600
   TOTAL is $1,200
   
3. Married couple with two children, no wages, no social security benefits, veterans’ payments of $4,000, no federal income tax liability before child tax credit.
   
   Rebate is $600
   Qualifying child credit is $600
   TOTAL is $1,200
   
4. Married couple with two children, no wages, no social security benefits, no veterans’ payments, AGI is $25,000, federal income tax liability before child tax credit is $70.
   
   Rebate is $600
   Qualifying child credit is $600
   TOTAL is $1,200
   
5. Married couple with two children, AGI is $35,000, federal income tax liability before child tax credit is $1,070.
   
   Rebate is $1,070
   Qualifying child credit is $600
   TOTAL is $1,670
   
6. Married couple with two children, AGI is $80,000, federal income tax liability before child tax credit exceeds $1,200.
   
   Rebate is $1,200
   Qualifying child credit is $600
   TOTAL is $1,800
   
7. Married couple with two children, AGI is $160,000, federal income tax liability before child tax credit exceeds $1,200.
   
   Rebate is $1,200
   Qualifying child credit is $600
   Phaseout reduction is ($500)
   TOTAL is $1,300