CHILD TAX CREDIT
Child tax credit is up from $600 to $1,000 per qualifying child effective year 2003 and 2004. The $400 retroactive increase in the child tax credit was paid automatically to certain taxpayers in the second half of 2003.
A qualifying child is one who is under age 17 at the end of 2003, claimed as your dependent on your taxes and is your son or daughter, foster child, brother, or sister whom you cared for as your own child.
Internal Revenue Service (IRS) is alerting taxpayers that they cannot claim the full $1,000 per child if they received an Advance Child Tax Credit Payment check last year. When figuring the credit, they must subtract the amount they got in advance. Failure to do so will reduce and could delay the tax refund claimed. Taxpayers can also find out the amount of their advance child tax credit payment by visiting www.irs.gov. Information is available by clicking on “1040 Central” or “Your 2003 Advance Child Tax Credit.”
The child tax credit begins to phase out when the modified adjusted gross income (AGI) reaches $110,000 for joint filers and $75,000 for single taxpayers. The credit is reduced by $50 for each $1,000, or fraction thereof, of modified AGI above the threshold. For additional information, see IRS publication 972, Child Tax Credit.
EARNED INCOME CREDIT (EIC)
A refundable EIC is intended to provide tax relief to certain low-income taxpayers who have earned income, meet AGI thresholds, and do not have investment income in excess of $2,600 in year 2003.
The maximum EIC for 2003 with one qualifying child is $2,547, with two or more qualifying children is $4,204 and with no qualifying children is $382. The credit begins to phase out for taxpayers whose filing status is not married with one qualifying child at $13,730, and with two or more qualifying children at $13,730, and with no qualifying children at $6,240. This credit is completely phased out with one qualifying child at $29,666, with two or more qualifying children at $33,692 and with no qualifying children at $11,230. Married-filing-jointly taxpayers add $1,000 to both the phase-out beginning and ending amounts for year 2003.
CHILD AND DEPENDENT CARE CREDIT
Beginning in year 2003, the maximum amount of eligible employment related expenses available for the dependent care credit is up from $2,400 to $3,000 for one qualifying dependent (under age 13). For two or more qualifying dependents, the available amount increases to $6,000.
The maximum credit percentage has been increased to 35 percent of eligible expenses. However, the credit percentage is reduced to 20 percent for taxpayers with AGI in excess of $43,000. Generally, if one spouse is not working, no credit is allowed. However, if the nonworking spouse is incapable of taking care of herself or himself or is a full-time student at an educational institution for at least five months during the year, the law assumes an earned income of $250 for each month if there is one qualifying child or $500 if there are two or more.
Parveen Maheshwari, C.P.A. has an office in Bur-lingame. (650) 340-1400.[email protected]