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. Tax Credit

    An amount of money that a taxpayer is able to subtract from the ...
  5. Modified Adjusted Gross Income ...

    The amount of income that determines how much of an individual's ...
  6. Qualified Longevity Annuity Contract

    A Qualified Longevity Annuity Contract (QLAC) is a deferred annuity ...
RELATED FAQS
  1. What are the best free online calculators for calculating my taxable income?

    Free online calculators for determining your taxable income are located at Bankrate.com, TaxACT.com and Moneychimp.com. Determining ... Read Full Answer >>
  2. Does my employer's matching contribution count towards the maximum I can contribute ...

    Contributions to 401(k) plans come from employee salary deferral and employer match dollars. According to the IRS, employees ... Read Full Answer >>
  3. How much will an employer generally contribute to a 401(a) plan?

    The amount an employer contributes to an employee's 401(a) retirement savings plan can vary from plan to plan. 401(a) plans ... Read Full Answer >>
  4. Can I get a tax credit from conducting research and development?

    It is possible for a company to qualify for a research and development tax credit for conducting research and development. ... Read Full Answer >>
  5. When can benefits be received from a provident fund?

    Like most retirement savings vehicles, participants in provident funds are eligible to receive benefits at retirement. However, ... Read Full Answer >>
  6. Is Social Security Income a perpetuity?

    Because Social Security income does not continue indefinitely, it cannot be classified as a perpetuity. What Is a Perpetuity? A ... Read Full Answer >>
Related Articles
  1. Taxes

    Tax Treatment Of Ineligible IRA Rollovers

    Eager to save for retirement? Learn how to avoid overpayment penalties.
  2. Retirement

    How IRA Contributions Affect Your Taxes

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

    What Does an Ideal Retirement Portfolio Look Like?

    The "ideal" portfolio can differ from one investor to another depending on many factors, but some themes hold true no matter what.
  6. Investing

    How to Protect Your Retirement After a Divorce

    Divorce is never fun, but knowing the rules and anticipating the impact of retirement plan division and pension payouts can make things easier.
  7. Retirement

    Calculating Volume Weighted Average Price

    Volume weighted average price, or VWAP, is the average value of a stock traded over the course of a set time horizon, which is typically one day.
  8. Professionals

    Which Robo-Advisor is Right for You?

    Which robo-advisor is right for you? There are many factors to consider, including breadth of services, ease of use and cost.
  9. Retirement

    401(k) Rollovers: The Tax Implications

    The tax rules for 401(k) rollovers can be simple or more complex, depending on which path you take.
  10. Retirement

    Avoid These 4 Retirement Account Mistakes

    The top 4 mistakes investors should avoid in their retirement accounts.

You May Also Like

Hot Definitions
  1. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  2. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  3. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  4. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  5. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  6. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!