A client, married filing jointly, has two dependent children aged 8 and 12. Their adjusted gross income (AGI) is $480,000. What is the maximum child tax credit they can claim for the current tax year?
- A$4,000
- B$2,000
- C$1,000
- D$0
Show answer & explanationAnswer & explanation
Correct answer: D. $0
For 2023, the maximum Child Tax Credit is $2,000 per qualifying child. For married couples filing jointly, the credit begins to phase out when AGI exceeds $400,000. The credit is reduced by $50 for each $1,000 (or fraction thereof) by which AGI exceeds the threshold. For an AGI of $480,000, the excess AGI is $480,000 - $400,000 = $80,000. The total reduction is ($80,000 / $1,000) * $50 = 80 * $50 = $4,000. Since the maximum potential credit for two children is $2,000 * 2 = $4,000, and the reduction is $4,000, the total credit is $4,000 - $4,000 = $0.
Why the other options are wrong
- A. This option is incorrect; this would be the maximum credit before any phase-out.
- B. This option is incorrect as the credit is fully phased out.
- C. This option is incorrect as the credit is fully phased out.
Child Tax Credit Phase-out
The Child Tax Credit, a non-refundable credit of up to $2,000 per qualifying child, is subject to phase-out for higher-income taxpayers based on their Modified Adjusted Gross Income (MAGI).
- Phase-out threshold for MFJ is $400,000 (2023).
- Phase-out threshold for single/HoH is $200,000 (2023).
- Credit is reduced by $50 for each $1,000 (or fraction thereof) over the threshold.
Memory trick: The higher your AGI, the 'Less Credit' you get for your kids.