Tax Legislation:

Economic Growth and Tax Relief Reconciliation Act of 2001: Part II (May 17th, 2001)

INCREASE IN CHILD TAX CREDIT AND MARRIAGE PENALTY RELIEF

- The child tax credit will slowly be phased in over the next nine years, increasing it to $1,000 per child effective 2010. Allows the credit to count against the alternative minimum tax. Makes a portion of the credit refundable. Disregards as income any such refunds for purposes determining eligibility for any federally funded assistance program. Simply meaning that the refund doesn’t count against you if you require financial assistance from the government.

- The bill extends permanently the adoption credit for children other than special needs children. Increases the maximum credit to $10,000 per eligible child, including special needs children. Extends permanently the exclusion from income for employer provided adoption assistance. Increases, to $150,000, the beginning point of the income phase out range. High-income couples are no longer at a disadvantage.

- Increases the maximum amount of employment related expenses taken into account when determining the dependent care credit (to $3,000 from $2,400 for one qualifying individual and to $6,000 from $4,800 for two or more qualifying individuals). Increases from 30 to 35 percent the applicable percentage used in determining such credit. Increases from $10,000 to $15,000 the beginning point of the credit phase down (35% to 20%). The rule: The taxpayer incurs the expenses in order to be able to earn income. In the case of married couples, both spouses must work full or part-time jobs, with an exception being made for a spouse who is a full-time student or incapacitated.

- Establishes an employer-provided childcare credit equal to the sum of 25 percent of qualified childcare expenses and 10 percent of the qualified childcare resource and referral expenditures. Caps such credits at $150,000 per year.

- Phases in increases in the standard deduction for the married filing jointly category to provide that by 2009 such deduction shall be twice that of an individual filing a single return. Something that for many years married taxpayers had considered a marriage penalty.

- Phases in increases in the 15 percent income tax rate bracket for the married filing jointly category to provide that by 2008 such rate bracket shall be twice the size of an individual filing a single return.

- Increases, on a joint return, with respect to the earned income credit, the phase out by $1,000 for 2002-2004, by $2,000 for 2005-2007, and by $3,000 for 2007 and following years. Provide for inflation adjustments to such amounts. Specifies, with respect to such credit, that earned income is to include only amounts includible in gross income. Repeals the reduction in such credit for taxpayers subject to the alternative minimum tax.

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