Question

There is a married couple with three children and an annual income of $24,000 who, because of the standard deduction and personal exemptions, owe no federal income tax. Suppose the child tax credit is such that for families that pay less income tax than the child credit to which they are entitled the law allows them to receive a refund of 15% of earnings over $12,000, up to a maximum of $800. a. What is the family’s tax credit per child? b. Suppose the cap is raised to 25%. What is the family’s tax credit per child in this scenario? c. Suppose that instead of raising the cap, i.e. the cap remains 15%, the threshold is lowered to $4,000. What is the family’s tax credit per child in this scenario? d. Which change, raising the cap to 25% or lowering the threshold to $4,000, would lead to more families qualifying for the tax credit?

Answer 1

Answer:

We have,

There is a married couple with three children and an annual income of $24,000 who, because of the standard deduction and personal exemptions, owe no federal income tax.

Now, we have to determine the following cases,

a)What is the family’s tax credit per child?

The family tax credit per child is confined to $800.see that 15% of income over $12000 suggests 15% of 12000 which is (12000*15/100=$1800) while the most extreme refund is $800.

b)Suppose the cap is raised to 25%.What is the family’s tax credit per child in this scenario?

Assume the cap is raised to 25% now the limit is stretched out to 25% of income over $12000 suggest 25% of 12000 which is (12000*25/100=$3000). while the refund is $800. thus the family's tax credit per child is this situation is $800.

c)Suppose that instead of raising the cap, i.e. the cap remains 15%, the threshold is lowered to $4,000. What is the family’s tax credit per child in this scenario?

Assume that as opposed to raising the cap that is cap stays 15% the edge is brought down to $4000. presently the family's tax credit per child in this situation is full $1800 as it lower than the limit.

d)Which change, raising the cap to 25% or lowering the threshold to $4,000, would lead to more families qualifying for the tax credit?

Bringing down the limit to $4000 would prompt more families meeting all requirements for the tax credit as observed in above.this is because of the size of the credit base.