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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
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CCH Whole Ball of Tax 2004
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
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Applies To
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Amounts For 2003 Taxes
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Child Credit
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Individuals/joint filers with dependents under age 17.
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$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.
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Personal Exemption
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Individuals/joint filers with dependent children under age 19 or, if
full-time student, under age 24.
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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.
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Childcare Tax Credit
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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.
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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.
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Adoption Credit
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Individuals/joint filers adopting children under age 18.
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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.
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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
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Applies To
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Exemption Qualifications For 2003 Filing
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Filing – tied to Standard Deduction
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All dependents
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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.
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Earned Income –paid by an employer
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All dependents
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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.
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Earned Income – self-employed
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All dependents
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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.
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Unearned Income –interest, dividends, capital gains
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Varies based on age of dependent*
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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.
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*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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