Phase Out

AAA

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.

INVESTOPEDIA EXPLAINS '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. Tax Deduction

    A deduction from gross income that arises due to various types ...
  2. Roth IRA

    An individual retirement plan that bears many similarities to ...
  3. Child Tax Credit

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

    The amount of income that determines how much of an individual's ...
  5. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
  6. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
Related Articles
  1. Retirement

    How IRA Contributions Affect Your Taxes

    Learn how to work with the tax man to avoid getting gouged when you convert your plans.
  2. Taxes

    Tax Treatment Of Ineligible IRA Rollovers

    Eager to save for retirement? Learn how to avoid overpayment penalties.
  3. Taxes

    How To Correct Ineligible (Excess) IRA Contributions

    Eager to save for retirement? Learn how to avoid overpayment penalties.
  4. Taxes

    An Introduction To Correcting Ineligible IRA Contributions

    Eager to save for retirement? Find out how to avoid overpayment penalties.
  5. Professionals

    Just Retired? No Better Time for a Second Career

    After working for decades and reaching retirement age, what's next? A second career, of course. Here's why and how.
  6. Retirement

    How does the Canada Pension Plan (CPP) work, and what asset mix does it hold?

    Learn the difference between a chartered financial analyst and the Canadian pension plan. Explore Canadian retirement options and how the CPP is invested.
  7. Professionals

    When Your Client's Retirement is Around the Corner

    With thousands of Baby Boomers reaching retirement age every day, here's a guide as to how financial advisors should approach and advise them.
  8. Professionals

    A New Wake-up Call for Savers

    Recent findings from an index that measures how many people who are at risk of not being able to maintain their current standard of living in retirement.
  9. Professionals

    Retirement Bliss? Not So fast: When Savings Lag

    Most people aren't saving enough for retirement. Here are some tips savers and financial advisors can use to change that.
  10. Economics

    EU Probes Tax Laws To Catch Corporate Cheaters

    Recently, the EU has launched an investigation into tax deals between Amazon and the country of Luxembourg.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center