The 1997 Tax Act: Family Tax Relief

Chapter 1
Family Tax Relief
A Tax News & Views Special Report:
Promises Kept: The 1997 Tax Law

Guide to
Promises Kept

Tax Cuts for Individuals

Principal Tax Increases

Other Key Provisions

Table of Contents

Child Tax Credit

Beginning in 1999, the Act provides a $500 tax credit for each dependent child (including stepchildren and eligible foster children) who is under the age of 17 at the end of the taxable year. For calendar year 1998, the credit is limited to $400.

Planning Point: Because of the age limit, the credit will become unavailable, for many children, one to two years before graduation from high school.

The child credit generally is available only to the extent of a taxpayer's regular income tax liability. However, for a taxpayer with three or more children, this limitation is increased by the excess of Social Security taxes paid over the sum of other nonrefundable credits and earned income tax credit allowed to the taxpayer.

The child credit is reduced, and eventually eliminated, as family income increases from $110,000 to $120,000. Taxpayers filing joint returns will lose $50 of the credit for every $1,000 (or part thereof) of adjusted gross income in excess of $110,000. For taxpayers filing single or head of household tax returns, the credit begins phasing out at $75,000 of adjusted gross income.

Savings from the Child Credit Assuming a family of four with two children under the age of 17 had typical levels of itemized deductions and no long-term capital gains, the savings from the child credit can be illustrated by looking at what would have happened if the credit had been available in 1997:
Income	Tax Without Credit	Tax With Credit	Savings
$35,000	$2,625	$1,625	38%
$50,000	$4,035	$3,035	25%
$75,000	$8,266	$7,266	12%
$100,000	$14,076	$13,076	7%

The child credit and the income threshold amounts are not indexed for inflation.

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Tax News & Views is produced by the Financial Counseling Specialists and the Legislative & Regulatory Services Group at Deloitte & Touche LLP.