Legislation would give credit against personal income tax equal to 50 percent of child-care expenses incurred
by a taxpayer (subject to a limit of $750 credit per family).
Analyze the implications of credit on two families of this state: Family #1 (in the 18 percent federal
tax bracket) and Family #2 (in the 35 percent federal tax bracket) each family expends
approximately $1500 per year for child-care. Currently only State income taxes are fully
deductible for federal tax purposes.If the child-care allowance were ena
If the child-care allowance were enacted as a credit and the state tax rate was a flat 4.0
percent how much would state liability for each of the families change?
b. Assuming the child-care allowance is enacted as a deduction (still subject to the same
$750 limit) what is the net after-tax cost of child-care expenses to each of the families?
You should consider both changes in federal and state tax liability (Hint: subtract the
changes in state and federal liability from $1500).
c. From the above computations which approach (credit or deduction) do you suppose the
Child-care coalition in the state would favor? Why? Is this the same approach that the
state comptroller would favor? Why or why not?
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