In 2019, John (52 years old) files as a head of household with one 18-year old dependent (qualifying) child. John is eligible to claim a $700 American opportunity credit for the year. John did not have any taxes withheld by his employer during the year and he did not make any estimated tax payments. After taking credits into account, what is the amount of John's taxes payable or refund, assuming that his AGI is $26,000 (all from salary) and his taxable income is $8,000?
What will be an ideal response?
Refund of $2,412.
Answer computed as follows:
Note: the $500 child tax credit is nonrefundable.
Earned income credit computation
| Description | Amount | Explanation | |||
| (1) | Greater of AGI or earned income | $ | 26,000 | AGI = earned income | |
| (2) | Maximum earned income eligible for earned income credit for taxpayers filing as single with one qualifying child | 10,370 | |||
| (3) | Earned income eligible for credit | 10,370 | Lesser of (1) or (2) | ||
| (4) | Earned income credit percentage for taxpayer with one qualifying child | 34 | % | ||
| (5) | Earned income credit before phase-out | 3,526 | (3) × (4) | ||
| (6) | Phase-out threshold begins at this level of earned income | 19,030 | |||
| (7) | Earned income in excess of phase-out threshold | 6,970 | (1) - (6) | ||
| (8) | Phase-out percentage | 15.98 | % | ||
| (9) | Credit phase-out amount | (1,114 | ) | (7) × (8) | |
| Earned income credit after phase-out | $ | 2,412 | (5) + (9) | ||
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