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How are the "Earned Income Credit" and "Child Tax Credit" calculated?

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Quick Answer

Both the earned income credit and the child tax credit are calculated based on income in a given year, according to the Internal Revenue Service. The earned income credit is based on adjusted gross income, while the child tax credit is based on modified adjusted gross income.

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Full Answer

The earned income credit is a tax credit available for low-income individuals that is based on adjusted gross income, according to the IRS. Adjusted gross income, or income after above-the-line deductions, cannot exceed $46,997 ($52,427 married filing jointly) with three or more qualifying children, $43,756 ($49,186 married filing jointly) with two qualifying children, $38,511 ($43,941 married filing jointly) with one qualifying child, or $14,590 ($20,020 married filing jointly) with no qualifying children for individual taxpayers. The maximum credit is $6,143 with three or more qualifying children, $5,460 with two qualifying children, $3,305 with one qualifying child or $496 with no qualifying children. The amount of the credit is based on an algorithm the IRS designed to determine eligibility and need.

The child tax credit is a deduction of $1,000 per child provided to taxpayers who meet the qualifying criteria. Children must be 17 and under, must pass the relationship test as denoted by the IRS, and the individual claiming the credit must provide at least half of the child's support. The taxpayer must also claim the child as a dependant, and the child must live with the taxpayer for at least half of the year. The phase-out level for married individuals is a modified adjusted gross income, or adjusted gross income with several deductions added back, of $110,000 as of tax year 2014. This limit drops to $75,000 for single taxpayers and $55,000 for married taxpayers filing separately, reports the IRS.

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