In 2017, for a single parent with two children, the EITC has the following featu
ID: 2543423 • Letter: I
Question
In 2017, for a single parent with two children, the EITC has the following features. From $0 to $14,040 in earned income (i.e. not including the credit), each dollar in income received results in $0.40 of credit. Between $14,040 and $18,340 in earned income, the size of this credit stays constant. For income over $18,340 in earned income, the credit declines by $0.2106 for each dollar in extra income received, until the credit reaches zero.
What is the maximum credit that a single parent of two can receive in 2017? At what income does the credit reach zero?
Explanation / Answer
Upto earned income of $18,340, the credit stays constant at $0.40 and the income over $18,340 the credit declines by $0.2106 for each dollar in extra income received. Therefore the maximum credit that single parent with two children can receive in 2017 is $7,336 ($18,340*0.40).
we need to compute the income in excess of $18,340 at which the maximum credit available (i.e. $7,336) will reduce to zero.
For every $1 increase in earned income credit will reduced by $0.2106, hence when total credit of $7,336
The increase in income required to become credit of $7,336 to zero = $7,336/0.2106 = $34,833.81
Hence at the earned income of $53,173.81 ($18,340+$34,833.81), the credit will reach zero.