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Federal Individual Income Tax Thresholds for 2004, May 12, 2004 1 (May 12, 2004)

handle is hein.tera/crstax0563 and id is 1 raw text is: Order Code RS21841 May 12, 2004 CRS Report for Congress Received through the CRS Web Federal Individual Income Tax Thresholds for 2004 Gregg Esenwein Specialist in Public Finance Government and Finance Division Summary One commonly accepted principle of tax fairness reflected in the U.S. tax code is that families at the low end of the income spectrum, especially those near the poverty threshold, should not be subject to the federal income tax. Since the major components of the federal income tax that govern these tax thresholds are indexed for inflation, nominal dollar federal individual income tax thresholds change every year.' This report presents the tax thresholds for various family income levels for tax year 2004. This report will not be updated. The major structural components of the tax code that influence the income levels at which various households become subject to the federal income tax include the standard deduction, the personal exemption, the child tax credit, and the earned income tax credit (EITC); each of these items increases the level at which a family's income becomes subject to the federal income tax.2 (In contrast to the federal income tax, all earned income is subject to the social security tax.) Consider the case of a married couple with one dependent child under the age of 17. In 2004, the standard deduction for a married couple filing a joint return is $9,700, each personal exemption is worth $3,100, and the child tax credit is $1,000 for each qualifying child. This family would reach the basic income tax threshold for their filing status and family size at an income level of $19,000 (standard deduction of $9,700 plus three personal exemptions of $3,100 each). Income under this amount would not be subject to tax while any income over this amount would be taxed starting at a 10% rate. Although income over this amount is subject to tax, the child tax credit would offset this couple's first $1,000 of income tax liability. Hence, this couple could earn an For more information on the structural components of the federal income tax and indexation, see CRS Report RL3 0007, Individual Income Tax Rates: 2004, by Gregg A. Esenwein. 2 The child and dependent care tax credit might also influence a household's federal income tax threshold, but it is not addressed in this report. Congressional Research Service ** The Library of Congress

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