Question

Kimberly has recently married Dean. Both taxpayers are 23 years old. They have one dependent child, Amber age 3.

Kimberly’s W-2 $5,000

Dean’s W-2 $7,000

Kimberly’s unemployment compensation $8,000

Dean’s unemployment compensation $9,000

What is their tax liability and tax credits? What is the maximum earned income credit a family (MFJ) with one child can receive?

Answer 1

Ans:

1. Kimberly and Deans tax liability and tax credits:

Tax refund - $3164

Tax credit - $3584

Description	Amount ($)
Kimberly's Wages	$5000
Dean's Wages	$7000
Kimberly's unemployement compensation (taxable as per IRS)	$8000
Dean's unemployement compensation (taxable as per IRS)	$9000
Gross Income	$32000
Less: Deductions	($0)
Adjusted Gross Income	$29000
Less: Standard deduction for married filimg jointly 2020	($24800)
Taxable Income	$4200
Tax Liability (10% upto $19750) as per 2020 Tax rate schedule	$420
Less: Earned Income Credit (from 2) Refundable credit i.e allowed in full	($3584)
Tax Refund	($3164)

2. Kimberly and Dean both are 23 years of age i.e., less than 25 years of age. For claiming Earned Income Credit, your age must be between 25-60 years but this requirement only applies if you do not have a qualifying child. Here Kimberly and Dean have one qualifying child so the age requirement would not apply and they can claim Maximum Earned Income Credit of $3,584 as of 2020 with one Qualifying Child. Also they do not have any investment income and their AGI for 2020 is within the limits which is $47,646.

3. As per 2019 Tax rate schedule:

Tax refund - $3066

Tax credit - $3526

Description	Amount ($)
Kimberly's Wages	$5000
Dean's Wages	$7000
Kimberly's unemployement compensation (taxable as per IRS)	$8000
Dean's unemployement compensation (taxable as per IRS)	$9000
Gross Income	$32000
Less: Deductions	($0)
Adjusted Gross Income	$29000
Less: Standard deduction for married filimg jointly 2020	($24400)
Taxable Income	$4600
Tax Liability (10% upto $19400) as per 2020 Tax rate schedule	$460
Less: Earned Income Credit (from 2) Refundable credit i.e allowed in full	($3526)
Tax Refund	($3066)

4. Kimberly and Dean both are 23 years of age i.e., less than 25 years of age. For claiming Earned Income Credit, your age must be between 25-60 years but this requirement only applies if you do not have a qualifying child. Here Kimberly and Dean have one qualifying child so the age requirement would not apply and they can claim Maximum Earned Income Credit of $3,526 as of 2019 with one Qualifying Child. Also they do not have any investment income and their AGI for 2020 is within the limits which is $46,884.