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Link to special CCH Tax Briefings on key topics from 2003:
 

CCH can assist you with stories, including interviews with CCH subject experts. Also, the CCH Whole Ball of Tax 2004 is available in print. Please contact:
 
Leslie Bonacum
(847) 267-7153
mediahelp@cch.com
 
Neil Allen
(847) 267-2179
allenn@cch.com

 
CCH Whole Ball of Tax 2004
Release (8) | Back to WBOT

CCH Whole Ball of Tax 2004

Contact: Leslie Bonacum, 847-267-7153, mediahelp@cch.com
Neil Allen, 847-267-2179, allenn@cch.com

Kids Offer Benefits at Tax Time

(RIVERWOODS, ILL., January 2004) – Of all the blessings that children bring, the blessings connected with taxes are currently at an all-time high, according to CCH INCORPORATED (CCH), a leading provider of tax law information and services.

The child credit increased to $1,000 for 2003 and 2004, and provided many parents with a $400-per-child check last summer. This may lead to some confusion when 2003 returns are completed, however, with some taxpayers trying to claim an additional $400, as happened for 2001 returns when a similar advance credit was paid. The credit will decrease to $700 in 2005.

In general, the tax law has become more family-friendly in recent years, with the increased child tax credit and higher education tax breaks as well as changes to the adoption credit. Now, more than ever, taxpayers with children need some help with the ABCs of taxes and children.

Offering some simple guidance on the basic tax credits available and the rules for kids’ income, CCH provides the following quick reference charts.

Kids and Basic Credits/Exemptions

Credit/ Exemption

Applies To

Amounts For 2003 Taxes

Child Credit

Individuals/joint filers with dependents under age 17.

$1,000 per child, phasing out when adjusted gross income (AGI) exceeds $75,000 for single filers and $110,000 for joint filers. Phases out at a rate of $50 of credit loss per $1,000 of AGI beyond the above incomes, with the upper phase-out range depending on the number of children claimed.

Personal Exemption

Individuals/joint filers with dependent children under age 19 or, if full-time student, under age 24.

Maximum exemption parent(s) can claim on return is $3,050. For divorced parents filing separately, generally the exemption goes to parent who has custody for the greater part of the year. But this rule applies only if the child receives more than one-half of his or her support from this parent.

Childcare Tax Credit

Individuals/joint filers with childcare expenses for children up to age 13, or older children if they are physically or mentally incapable of caring for themselves.

Credit taken against maximum qualifying expenses of $3,000 for one qualifying dependent and $6,000 for two or more. Credit equals 35% of qualifying expenses for taxpayers with AGI up to $10,000 and decreases with income to 20 percent of allowable expenses for AGI of $43,000 or more.

Adoption Credit

Individuals/joint filers adopting children under age 18.

Maximum credit of $10,160 for a regular adoption, with credit amounts phased out at incomes between $152,390 and $192,390 for both single filers and joint filers. For a special needs adoption, the credit is figured without regard to the actual expenses paid or incurred in the year the adoption becomes final.

Special Tax Treatment for Children’s Income

In most instances, children’s income is treated differently when it comes to taxes, depending on a variety of factors, including age and if the income was earned – such as wages – or unearned – such as interest, dividends or capital gains.

There also is a cloud on the legislative horizon, however. To help pay for this year’s tax cuts, the Senate Finance Committee at one point approved an increase in the age for including a child’s income on the parent’s tax return, from 14 to 18. The legislation is likely to be considered by the full Senate in 2004.

Here is a quick reference to help parents determine their kids’ tax obligations.

Income Type

Applies To

Exemption Qualifications For 2003 Filing

Filing – tied to Standard Deduction

All dependents

Must file a tax return if they have more than $750 in unearned income, or earned income over $4,750 – or, if their total income was more than the larger of $750 or their earned income (up to $4,500) plus $250.

Earned Income –paid by an employer

All dependents

The standard amount of earned income exempt from income taxes is $4,750. Anything above this is taxed at the child’s income bracket. Although a return is not required with income below $4,750, a child with less income may want to file to obtain refund of withheld taxes.

Earned Income – self-employed

All dependents

The standard amount of earned income exempt from income taxes remains $4,750. However, the child must pay self-employment tax for Social Security and Medicare on any self-employment income greater than $400.

Unearned Income –interest, dividends, capital gains

Varies based on age of dependent*

Children under age 14: Unearned income above $1,500 is taxed at the parent’s income rate.

Children over 14: Unearned income is taxed at the child’s tax rate, regardless of the parents’ income tax bracket.

*Parents can elect to include the unearned income of a child under the age of 14 whose income is less than $7,500 on their return by filing IRS Form 8814 along with the parents’ return. However, while combining the child’s income with the parents eliminates the need for the child to file his own tax return, it will increase the parents’ adjusted gross income (AGI) and, therefore, possibly reduce the parents’ deductions or other potential tax breaks.

About CCH INCORPORATED

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served more than four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, accounting, legal, securities and small business markets. CCH is a Wolters Kluwer company. The CCH Federal and State Tax group, CCH Tax Compliance and Aspen Publishers Tax and Accounting group comprise the new Wolters Kluwer Tax and Accounting unit. The unit’s web site can be accessed at tax.cchgroup.com.

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