Family Equity Act of 1988

Family Equity Act of 1988 - Amends the Internal Revenue Code to allow an individual taxpayer a refundable income tax credit, in an amount based on adjusted gross income (minimum credit of $150), for each dependent below the age of compulsory school attendance in the State where the taxpayer resides. Sets the maximum credit amount as the total employee tax withheld from the taxpayer's wages during the year under the Federal Insurance Contributions Act.

Increases to $2,900 the amount permitted as a deduction for personal exemptions.

Repeals the employment-related dependent care tax credit as of tax year 1989.

Revises the earned income tax credit to: (1) increase from $5,714 to $7,143 the amount of earned income subject to the credit; and (2) increase the credit percentage incrementally from 14 percent to 35 percent, adjusted annually for inflation, as the number of the taxpayer's dependent children increases from one to four or more.

Repeals provisions of the Tax Reform Act of 1986 that eliminated the income tax deduction for two-earner married couples.

Repeals provisions: (1) that limit the tax deduction for participation in certain pension plans; and (2) governing nondeductible contributions to individual retirement plans.

Excludes from the gross income of an individual any amounts distributed out of an individual retirement plan that are: (1) used within 60 days of receipt to pay long-term care expenses of the taxpayer, spouse, or dependent; (2) used to pay the educational expenses of a student at an institution of higher education or postsecondary vocational school; or (3) used within 60 days of receipt by an individual in connection with the acquisition of a first principal residence.

Permits an income tax deduction for expenditures of the taxpayer to provide otherwise uncompensated custodial care for a parent, grandparent, or dependent aged 65 or older. Excepts this deduction from the two percent floor limitation.

Excludes all Social Security and Tier 1 railroad retirement benefits from taxable income for income tax purposes.

Excludes from gross income any earnings and distributions in connection with any deposit of money with an institution of higher education intended to pay the educational expenses of a beneficiary attending the institution. Applies the exclusion only if payments or distributions are used within 60 days to pay these expenses.