How much will Tim Thompson's Child Tax Credit be reduced by, given his MAGI of $203,000?

How much will Tim Thompson's Child Tax Credit be reduced by, given his MAGI of $203,000?

• A. $0
• B. $150
• C. $500
• D. $1,000

Answer: (C)

To understand how much Tim Thompson's Child Tax Credit will be reduced based on his Modified Adjusted Gross Income (MAGI) of $203,000, it is important to consider the phase-out thresholds established by the IRS for this credit. For the Child Tax Credit, there is a defined threshold at which the credit begins to decrease for higher-income earners. As of the current tax guidelines, for married couples filing jointly, the credit begins to phase out when their MAGI exceeds $200,000. Since Tim's MAGI is $203,000, it exceeds this threshold by $3,000. The phase-out rate for the Child Tax Credit is $50 for every $1,000 of income over the threshold. Therefore, for the $3,000 that Tim's income exceeds the threshold, we can calculate the reduction in his credit: - For every $1,000 over the threshold, the credit is reduced by $50. - Tim's MAGI is $3,000 over the limit, which means the reduction is calculated as follows: \(3 \times 50 = 150\). As a result, the reduction in Tim Thompson's Child Tax Credit due to his MAGI will be $150. Thus

To understand how much Tim Thompson's Child Tax Credit will be reduced based on his Modified Adjusted Gross Income (MAGI) of $203,000, it is important to consider the phase-out thresholds established by the IRS for this credit.

For the Child Tax Credit, there is a defined threshold at which the credit begins to decrease for higher-income earners. As of the current tax guidelines, for married couples filing jointly, the credit begins to phase out when their MAGI exceeds $200,000.

Since Tim's MAGI is $203,000, it exceeds this threshold by $3,000. The phase-out rate for the Child Tax Credit is $50 for every $1,000 of income over the threshold. Therefore, for the $3,000 that Tim's income exceeds the threshold, we can calculate the reduction in his credit:

• For every $1,000 over the threshold, the credit is reduced by $50.

• Tim's MAGI is $3,000 over the limit, which means the reduction is calculated as follows: (3 \times 50 = 150).

As a result, the reduction in Tim Thompson's Child Tax Credit due to his MAGI will be $150. Thus