Twelfth Public Meeting October 18, 2005. 2 The New Family Credit The provisions to adjust for family size and ability to pay in the current code are.

Twelfth Public Meeting October 18, 2005 2 The New Family Credit The provisions to adjust for family size and ability to pay in the current code are redundant and unnecessarily complex Family-Related Tax Benefits Under Current Law Standard Deduction Provides a deduction from income based on filing status. Personal Exemption Provides a benefit for each member of a household. Phased out for taxpayers with higher incomes. Child Tax CreditProvides a credit for each child. Phased out for taxpayers with higher incomes. Head of Household Filing Status and Tax Bracket Increases the amount of the standard deduction and provides more generous tax bracket thresholds for unmarried taxpayers who maintain a household for a dependent. New Family Credit 3 The New Family Credit Provides tax benefit comparable to current system Easy computation Step 1: Figure base amount of Family Credit Step 2:Add amounts for children and other dependents Step 3: Subtract the Family Credit from tax due 4 The New Work Credit Work-Related Tax Benefits Under Current Law EITCProvides lower-income taxpayers a refundable credit designed to encourage work. Refundable Child Tax Credit Provides lower-income taxpayers a refundable credit for each child designed to encourage work. New Work Credit Maintains work incentives comparable to the current system o Credit amount increases as the amount of work income increases o Credit rate and maximum credit is higher for workers with dependents Simpler structure would be coordinated with Family Credit o Almost all of the eligibility rules and computations flow from Family Credit Designed to facilitate easy computation for taxpayers or for the IRS to compute on behalf of taxpayers 8