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Bread Winners and the Most Common Family Friendly Tax Breaks

Updated on August 29, 2015

Cash Machine

Bread winners get good dough from family friendly tax credits.
Bread winners get good dough from family friendly tax credits. | Source

Reward for Responsibility

The I.R.S. tax rules encourage bread winners in the endeavor to support their families. The tax breaks that follow are by no means the only family favored benefits but are among the most common. The following information is not given with the intent to provide tax advice but rather to analyze the tax system with respect to the values imparted by its rules and regulations.

Kid Friendly Credits

Kid Friendly Credits

The companion kiddie tax credits are rare in that an age limit is demanded of all of the taxpayer(s) qualifying dependents. The Child Tax Credit (C.T.C.) and the Additional Child Tax Credit (A.C.T.C.) requires that bread winners’ dependents are under the age of 17 at the end of the tax year. The son who celebrates his 16th birthday on December 31st of the tax year qualifies the taxpayer(s) for these credits. The daughter who becomes 17 years of age on the same day does not qualify the taxpayer(s) for either credit. Bread winners have cashed in these family friendly credits. The Congressional Joint Committee on Taxation estimated a net gain of tax reductions and refunds of roughly $112 billion in 2012 and 2013 to those who took advantage of these credits. [1]

Child Tax Credit

The Child Tax Credit benefits taxpayers with fuller bread baskets who incur tax liability and impart much of their dough towards raising their kids. It provides relief to the duo income, professional class, and higher wage earning bread winners snubbed by the stingy income limits imposed by the Earned Income Credit. (E.I.C.) The C.T.C. does enact restrictions on income but its modified adjusted gross income limits are far higher than its E.I.C. counterparts.

Bread winners with qualifying children can reduce their tax liability up to $1,000 per qualifying child. As a rule, the qualifying child (or children) must be the taxpayer(s) dependent and live with them for more than half of the year. However, the non-custodial divorced parent who can claim the qualifying child as a dependent is able to take the credit upon providing the correct forms.[2] The non-refundable C.T.C. can only save as much dough the bread winners have in tax liability.

The C.T.C. is a relatively recent family favored credit. It emerged as part of the Taxpayer Relief Act of 1997, enjoying wide spread bipartisan support.[3] Apparently, it still maintains support among America’s bread winners.


[1] Congressional Joint Committee on Taxation, cjt.gov-Estimates of Federal Tax Expenditures 2013-2017

[2] See reference charts Child Tax Credit. The necessary forms are explained in detail in the sections referenced.

[3] Taxpayer Relief Act of 1997 (P.L. 105-34) The Child Tax Credit is codified in the Internal Revenue Code at 26 U.S. Code § 24


A high chair helps the bread winners younger "qualifying children" at mealtime, the family friendly t ax breaks helps bread winners get some extra change.
A high chair helps the bread winners younger "qualifying children" at mealtime, the family friendly t ax breaks helps bread winners get some extra change. | Source

Additional Child Tax Credit

The Additional Child Tax Credit enables taxpayers to get and save more dough than they would from the Child Tax Credit alone- thus the name. It helps bread winners whose tax liability or lack thereof would fail to qualify them for some or all of the C.T.C. benefits. Furthermore, it is a refundable credit that allows people to get back more dough from the U.S. Treasury than they paid into it via income taxes.

Whereas the refundable aspect is indulgent, it still isn’t infinite. The A.C.T.C. subjects bread winners to the same modified adjusted gross income limits as its non-refundable credit companion. It also includes a formula that limits the taxpayer(s) refundable amount. The Additional Child Tax Credit provides the refundable aspect of the Earned Income Credit with more generous income allowances. It is the best of both the C.T.C and E.I.C. worlds.

Bread Winner Family Friendly Tax Credit Refernces

Family Friendly Credit
Income Tax Return
Form
Publication
Pub 17
Additional Child Tax Credit
1040 line 67, 1040A line 43
Schedule 8812
972
Part 6 Chapter 34
Child Tax Credit
1040 line 52 1040A line 31
Schedule 8812
972
Part 6 Chapter 34
Earned Income Tax Credit
1040 line 71, 1040A line 42a
Schedule E.I.C., worksheet ,8862
596
Chapter 36

The Quality Time Friendly Earned Income Credit

It is called the Earned Income Credit* for a reason. To qualify taxpayers must have earned income. Taxpayers’ income must be received i.e. earned as an exchange for services rendered-the typical definition of work. Furthermore, it limits how much “un-earned” income eligible taxpayers can receive.[4]

The Earned income Credit features two other unique aspects. One such novelty is that it prefers custody over cash. The custodial bread winners who live with the qualifying child more than half of the year are favored by the E.I.C. over non-custodial bread winners even when such taxpayers can claim the qualifying child as a dependent. The E.I.C. benefit is also distinct in that it is available to taxpayers without a qualifying child subject to certain age restrictions that are not required of taxpayers with a qualifying child.

The one drawback to this bread winner friendly benefit is the relatively low Adjusted Gross Income ceilings imposed upon taxpayers. However, it is a refundable credit and as such has made a difference. According to the Center on Budget and Policy Priorities, it lifted more than six million people out of poverty in the calendar year 2013.[5] It was in fact conceived for this purpose. The Tax Reduction Act of 1975 (P.L. 94-12) implemented it to offset the cost of non-deductible payroll taxes such as Social Security.[6] The family friendly credit assisted nearly 28 million people for the tax year 2013.[7] Families helped by the E.I.C. averaged a payout of $2407 per return.[8] It is good to earn a living and subsequently earn a tax break.


* The Earned Income Tax Credit is the official name but sometimes called the Earned Income Credit.

[4] Investment, retirement, transfer payments and other income that isn't dependent upon current services rendered are referred to as un-earned income by the tax code.

5) Policy Basics: Earned Income Tax Credit, Center on Budget and Policy Priorities, www.cbpp.org Jan 31 2014

6) www.taxpolicycenter.org/publications. Originally published in the Encyclopedia of Taxation and Tax Policy (1999 Urban Press Institute) edited by Joseph J Cordes, Robert D Ebel and Jane G Gravelle.

7) E.I.T.C. Calendar Year Report, January 2015 (I.R.S.)

8) E.I.T.C. Calendar Year Report, July 2014 (I.R.S.)





1040 /Just the Messenger

Taxtionary

Adjustment- An expense or deduction reduced from taxpayer(s) Gross Income to determine Adjusted Gross Income.

Adjusted Gross Income- The taxpayer(s) income after adjustments from Gross Income.

Credit- A dollar for dollar reduction of the taxpayer(s) Tax Liability.

Dependent- An individual the taxpayer(s) can use as an exemption who meets requirements specific to their relationship to said taxpayer(s).

Exemption- An individual a taxpayer can claim to reduce their tax liability. The person can be the taxpayer, spouse or a dependent of the taxpayer(s). The Exemption amount ($3950) is the actual reduction in dollars received for the person.

Gross Income- The total income derived from all sources of income received by the taxpayer(s) that is subject to taxes.

Modified Adjusted Gross Income- The taxpayer(s) Adjusted Gross Income with modifications included to determine eligibility for a particular tax benefit. The MAGI formula varies with regard to the tax benefit.

Non-Refundable Credit- A credit that reduce Tax Liability and simply allows the taxpayer(s) to benefit to the amount of Tax Liability.

Refundable Credit- A Credit that that reduce the taxpayer(s) burden beyond their Tax Liability.

Taxable Income-The amount of the taxpayer(s) that is income subject to taxes.

Tax Liability-The amount of taxes for which the taxpayer(s) is liable.

Tax Year- The year for which the taxpayer(s) taxes are filed.

Comments

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    • justthemessenger profile imageAUTHOR

      James C Moore 

      3 years ago from The Great Midwest

      FlourishAny, I try hard. I'm not one to "loaf" around.

    • FlourishAnyway profile image

      FlourishAnyway 

      3 years ago from USA

      Thanks for "rising" to the occasion and offering such useful tips.

    • justthemessenger profile imageAUTHOR

      James C Moore 

      3 years ago from The Great Midwest

      Kneading more, I must remember that one. Thanks for reading.

    • billybuc profile image

      Bill Holland 

      3 years ago from Olympia, WA

      Very clever title....you left me kneading more. :) Great information here...and it is definitely that time, isn't it? Here's hoping you get a big refund.

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