 |
CCH can assist you with stories, including interviews with CCH subject experts.
Also, the 2006 CCH Whole Ball of Tax is available in print. Please
contact:
Leslie Bonacum
(847) 267-7153
mediahelp@cch.com
Neil Allen
(847) 267-2179
neil.allen@wolterskluwer.com
Link to special CCH Tax Briefings on key topics from 2005:
|  |
2006 CCH Whole Ball of Tax
Family-friendly Tax Code Offers Kid-linked Benefits
(RIVERWOODS, ILL., January 2006) – The U.S. Department of
Agriculture estimates that a middle-income family will spend more than $233,000
raising a child born in 2000 through age 17. But beginning in the 1990s,
there has been increasing help with that burden in the form of credits, exemptions
and deductions for kids at tax time, according to CCH, a Wolters Kluwer business
and a leading provider of tax and accounting information, software and services
(tax.cchgroup.com).
One
important change for 2005 brought about by the Working Families Tax Relief
Act of 2004 is a new uniform definition of child for
purposes of the dependency exemption, the child tax credit, the childcare
credit, head of household filing status and the earned income credit. The
new requirements focus on a relationship test and a support test. In general,
they are somewhat more generous than the old requirements, but may work
to the disadvantage of non-parents who nevertheless financially support children
who live in their homes.
Following, CCH outlines some simple guidance on the basic
tax credits available and the rules for kids’ income.
Basic Credits/Exemptions for Kids
Credit/ Exemption
|
Applies to
|
Amounts for 2005
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 $3,200. For divorced parents filing separately, generally
the exemption goes to parent who has custody for the greater part
of the year.
|
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 percent of qualifying expenses for
taxpayers with AGI up to $15,000 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 $10,630 for a regular
adoption, with credit amounts phased out at incomes between $159,450
and $199,450 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.
|
Filing – tied to Standard Deduction
|
All dependents.
|
Must file a tax return if they have more
than $800 in unearned income, or earned income over $5,000 – or,
if their total income was more than the larger of $800 or their
earned income (up to $4,750) plus $250.
|
Earned Income – paid by an employer
|
All dependents.
|
The standard amount of earned income exempt
from income taxes is $5,000. Anything above this is taxed at the
child’s income bracket. Although a return is not required with
income below $5,000, 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 $5,000. 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 $1,600 is taxed at the parents’ income rate.
Children 14 and over: 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 $8,000
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.
SOURCE: CCH, 2006
Permission for use granted.
About CCH, a Wolters Kluwer business
CCH, a Wolters Kluwer business (tax.cchgroup.com)
is a leading provider of tax, audit and accounting information, software
and services. It has served tax, accounting and business professionals and
their clients since 1913. Among its market-leading products are The ProSystem fx® Office, CCH® Tax
Research NetWork™, Accounting
Research Manager™ and the U.S.
Master Tax Guide®. CCH is based in Riverwoods, Ill.
Wolters Kluwer is a leading multinational publisher and information
services company. Wolters Kluwer has annual revenues (2004) of €3.3 billion,
employs approximately 18,400 people worldwide and maintains operations across
Europe, North America and Asia Pacific. Wolters Kluwer is headquartered in
Amsterdam, the Netherlands (www.wolterskluwer.com).
Its depositary receipts of shares are quoted on the Euronext Amsterdam (WKL)
and are included in the AEX and Euronext 100 indices.
-- ### --
nb-06-11
|
|
|
|