DEFINITION of 'Phase Out'

1. The gradual reduction of a tax credit as a taxpayer approaches the income limit to qualify for that credit.
2. The gradual reduction of a taxpayer's eligibility to contribute to a tax-advantaged retirement account as the taxpayer approaches an income limit.

BREAKING DOWN 'Phase Out'

1. For example, the federal Child Tax Credit begins to phase out for married taxpayers filing jointly when their modified adjusted gross income (MAGI) reaches $110,000. If their MAGI falls below this number, they can claim the full credit. If it falls above this number, the credit is gradually reduced until the income limit is reached. Above that limit, the taxpayer cannot claim the Child Tax Credit.
2. In 2009, single taxpayers whose MAGI was more than $55,000 could not fully deduct contributions to a traditional IRA from their taxes. This tax credit phased out for MAGI between $55,000 and $65,000, meaning that contributions were only partly deductible. Single taxpayers with MAGI above $65,000 could not deduct their traditional IRA contributions from their taxes at all.

RELATED TERMS
  1. Earned Income Credit - EIC

    A tax credit in the United States which benefits certain taxpayers ...
  2. Dependent

    An individual whom a taxpayer can claim for credits and/or exemptions. ...
  3. Section 1341 Credit

    A tax credit available for taxpayers who are repaid in a later ...
  4. Child Tax Credit

    A credit given to taxpayers for each dependent child that is ...
  5. Modified Adjusted Gross Income ...

    The amount of income that determines how much of an individual's ...
  6. Standard Deduction

    A base amount of income that is not subject to tax and that can ...
Related Articles
  1. Taxes

    Give Your Taxes Some Credit

    A few tax credits can greatly increase the amount of money you get back on your return.
  2. Taxes

    New Tax Rules Target The Top Tax Bracket

    The American Taxpayer Relief Act brings about new tax rules for the wealthy that people such as Warren Buffett have been calling for over the last few years.
  3. Investing

    What's MAGI?

    Modified adjusted gross income, or MAGI, is one aspect of a person’s income that is calculated while preparing a tax return.
  4. Financial Advisor

    Maxed Out Your 401k? Here's What to Do Next

    Maxed out your 401(k)? Don't stop there. Here are some options to keep saving toward retirement.
  5. Taxes

    What's IRS Form 1040 For?

    Most U.S. taxpayers will be familiar with the 1040. By the end of filling it out, you'll know how much tax you owe, or what your refund is.
  6. Retirement

    Saver's Tax Credit: A Retirement Savings Incentive

    Here's another reason to put money toward your retirement nest egg.
  7. Retirement

    IRA Contribution Limits in 2016

    Find out about the 2016 limits for contributions and income thresholds for individual retirement accounts, including traditional IRAs and Roth IRAs.
  8. Taxes

    Start Over With The IRS

    If you're struggling to pay back taxes, try a fresh start with the IRS. They really can help.
  9. Taxes

    Increase Your Tax Refund With Above-The-Line Deductions

    Find out about these deductions and how you can use them to lower your tax bill.
  10. Taxes

    IRS Asset Seizures: Could It Happen To You?

    If you can't pay your taxes, know that the IRS has many avenues for collecting what you owe.
RELATED FAQS
  1. What is the difference between MAGI (modified adjusted gross income) and adjusted ...

    Understand the difference between adjusted gross income and modified adjusted gross income and the effect each has on personal ... Read Answer >>
  2. My spouse and I now earn more than the dual-income limit specified by our IRAs. What ...

    The amounts that you contributed while your modified adjusted gross income (MAGI) was within the statutory limits will not ... Read Answer >>
Hot Definitions
  1. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  2. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  3. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  4. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
  5. Yuppie

    Yuppie is a slang term denoting the market segment of young urban professionals. A yuppie is often characterized by youth, ...
  6. SEC Form 13F

    A filing with the Securities and Exchange Commission (SEC), also known as the Information Required of Institutional Investment ...
Trading Center