The Bush Tax Cuts: What are They? (Part 1 of 2), defined several Bush tax cuts that are set to expire at year end. They include a federal tax rates increase, an increase in capital gains or qualified dividends, and a lowered maximum for estate and gift tax exclusions. So, how will the potential expiration of these tax cuts affect families with children? What about the proverbial married DINKs (double-income-no-kids)? How will the new taxes and increases related to healthcare play out? What should we do to plan for it? As you can imagine, not everyone is affected by all the changes, but we all should give some attention to the many moving parts.
The child tax credit is a federal tax break designed to reduce taxes for people with children. Currently, the tax credit provides up to $1,000 in relief for every qualified child younger than 17. Unless there’s further legislation, the child tax credit will revert to its previous maximum of $500 per child starting in 2013.
The Bush tax cuts gave a married couple filing jointly a standard deduction twice that of a single filer, where before it was only 40% more. This helped keep the marriage penalty from biting lower and middle-income couples. If the tax cuts expire, starting next year, the joint-filer tax brackets will contract, causing higher tax bills for many lower and middle-income income couples due to a harsher marriage penalty.