Family Deduction and Credits

 The tax Relief Act reduces taxes for potentially all taxpaying married couples by in the standard deduction for joint filers to twice that of singles, and widening the 15 percent tax bracket for joint filers to twice that of singles. 

Beginning in 2005, the standard deduction for joint filers would increase to equal 200% by 2009 of the standard deduction available for single filers according to the following phase-in schedule:

Year Standard Deduction for Joint Filers as a Percentage of the Standard Deduction for
Single Filers
2009 and later       


The Tax Relief Act increases the size of the 15% regular income tax rate bracket for a married couple filing a joint return to twice that for an unmarried single return, phased in over four years, beginning in 2005.

Year End point of 15-percent rate bracket for married couple filing joint return as percentage of end point of 15 percent rate bracket for unmarried individual
2008 and thereafter

For married taxpayers who file a joint return, the Tax Relief Act increases the beginning and ending of the earned income credit phase-out by: 

Year Increase beginning and ending of earned income credit
2002 - 2004
2005 - 2007


After 2008 the $3,000 amount will be adjusted annually for inflation. 

The definition of earned income is simplified by excluding nontaxable employee compensation for income credit purposes. The Tax Relief act repeals the rule that reduces the earned income credit by the amount of an individual's alternative minimum tax. The calculation of the earned income credit is simplified by replacing modified adjusted income with adjusted gross income. Beginning in 2004, the IRS is authorized to use math error authority to deny the earned income credit if the Federal case Registry of Child Support Orders indicates the taxpayer is the noncustodial parent of the child with respect to who, the credit is claimed. 

The child tax credit will double from $500 to $1000 over the next ten years (it will be $600 for 2001).

For Taxable Year Per Child Credit Increases To:
2001 - 2004
2005 - 2008
2010 and later


The tax credit will continue to phase out above $75,000 for single individuals and those filing as head of household, and above $110,000 for married couples filing jointly. 

Effective in 2001, the credit becomes partially refundable for all families with children, rather than for only those with three or more children, as was the case under prior law. (For families with three or more children are allowed a refundable credit based either on the new provisions or prior law -- claim a refundable credit for the amount by which the taxpayers social security taxes exceed the earned income credit). Also in 2001 the act repeals the provision requiring tax payers to offset the refundable child credit and the earned income credit by the amount of a taxpayer's alternative minimum tax liability. In addition, the refundable portion of the child credit does not constitute income and shall not be treated as resources for the purposes of determining eligibility or the amount or nature of benefits or assistance under any Federal program or any State program financed with Federal funds. 

Taxable Year Credit Refundable
2001 - 2004
2005 - thereafter              
up to 10% of income in excess of $10,000*
up to 15% of income in excess of $10,000*


Effective in 2002, the adoption credit with respect to children other than those with special needs is permanently extended (it was due to expire after 2001). In addition:

  • The maximum credit (and employer-benefits exclusion) is increased to $10,000 per eligible child, for both special needs children and other children.
  • The income phase-out range applicable to the credit and the exclusion is increased to modified adjusted gross income between $150,000 and $190,000.
  • The adoption credit is allowed against the alternative minimum tax.

In the case of a special needs adoption, effective in 2003, the $10,000 credit for a special needs adoption will be available in the year that the adoption is finalized, regardless of whether the taxpayer has any qualified adoption expenses.

The Tax Relief Act increase the maximum amount of eligible employement-reIated expenses to $3,000 for one dependent (up from $2,400) and to $4,800 to $6,000 for two or more dependents. 

The maximum dependent care credit is increased to 35% of qualified care expenses (the old law was 30% of expenses). The dependent care credit phased-down is increased to $15,000 of adjusted gross income (the old law decreased once adjusted gross income reached $10,000).

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