The cox's reported $490,000 AGI on their joint return. the couple has three dependent children under age 17. Their child tax credit is $1,500
Calculation:
490,000 - 400,000 = 90,000
90,000 / 1,000 = 90 × 50 =4,500
2,000 × 3 = 6,000
Tax credit = 6,000 - 4,500 = $1,500
- A tax credit is a sum of money that taxpayers are permitted to deduct, dollar for dollar, from the income taxes they are required to pay.
- Tax credits are preferable to tax deductions because they lower the total amount of tax owed rather than just the amount of taxable income.
- Tax credits come in three basic varieties: nonrefundable, refundable, and partially refundable.
- Since they are fully reimbursed, refundable credits are very advantageous to taxpayers.
- A nonrefundable tax credit can make you owe no money in taxes, but it can't give you a tax refund.
- The federal and state governments may offer tax credits to encourage particular actions that are good for the economy, the environment, or anything else they deem significant.
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