Virginia Beach, VA (PRWEB) February 13, 2012
From the cradle to college, children’s lives greatly impact the tax situations of their families. Here’s a checklist from Liberty Tax Service of potential tax breaks for families this year.
“Many tax breaks continue for families this year including the increased child tax credit,” said John Hewitt, CEO of Liberty Tax Service.
The Child Tax Credit
Parents may again reap the benefits of the increased child tax credit in 2011and 2012. The additional child tax credit on Form 8812 is refundable to the extent of 15% of the taxpayer’s earned income in excess of $3,000, rather than on a minimum income of $12,550. A qualifying child must be under 17, a son, daughter, stepchild, eligible foster child who is a dependent, brother, sister, stepbrother, stepsister, or descendent of one of them (including grandchild, niece and nephew). This credit is nonrefundable, and can only reduce the taxpayer's income tax. A refundable additional child tax credit may be available to those who qualify and have not used up the available amount. A military taxpayer’s nontaxable combat pay is added to the earned income which may yield a larger credit.
Earned Income Credit
Low and moderate income wage earners may qualify for the Earned Income Credit. Because the EIC is a refundable credit, it can reduce or eliminate tax liabilities for eligible wage earners with and without children. The maximum credit is $5,751 for 2011.
“Kiddie Tax” Change Affects Children’s Investment Income
Children who are under age 18 at the end of the year will continue to be taxed at the parent’s tax rate. This taxing of investment income at the parent’s tax rate will also apply to a child age 18 at the end of the year, or to a child who was a full-time student, over age 18 and under age 24 at the end of the year, when the child did not have earned income that was more than half of the child’s support. If the child’s interest, dividends, and other investment income total more than $1,900, part of that income may be taxed at the parent’s tax rate instead of at the child’s tax rate.
For each qualifying child, you can claim a dependent’s exemption of $3,700.
Children who are working cannot claim their own exemptions if they qualify to be claimed as a dependent.
Child and Dependent Care Credit
A credit for up to 35% of qualified child and dependent care expenses paid is available for taxpayers who pay a caregiver in order to go to work or to look for a job. Qualified expenses may be allowed for up to $3,000 for one eligible child or dependent, and $6,000 for two or more. Persons employed or looking for work who must pay someone to care for dependents under age 13, or for a qualified disabled person may also be able to take this credit.
Children as Your Employees
A child employed by a parent is exempt from having FICA withheld from his or her income until age 18 and exempt from the parent’s paying FUTA until age 21. The child must be a bona-fide employee of the parent-owned business. It’s important to document the child’s hours, nature of their work, and wages earned with weekly timesheets and the child must be issued a Form W-2.
Children Born on December 31 Can Be Claimed the Entire Year
Any child born in 2011 up to the last minute of the year on December 31 can be claimed for the entire year of 2011.
Education Credits for Children and Dependents in College
There are several credits available for taxpayers with children or family members in college. Qualifying higher education expenses such as tuition and fees paid for you, a spouse, or a dependent may be deductible. The American Opportunity Tax Credit will be available through 2012. Taxpayers may deduct qualified education expenses up to $2,500 per eligible student. Taxpayers may receive the credit of up to 100 percent of the first $2,000 in expenses, fees and tuition, and 25 percent of the next $2,000 of education expenses.
About Liberty Tax Service
Liberty Tax Service is the fastest-growing retail tax preparation company in the industry’s history. Founded in 1997 by CEO John T. Hewitt, a pioneer in the tax industry, Liberty Tax Service has prepared over 9,000,000 individual income tax returns. With 42 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service. Each office provides computerized income tax preparation, electronic filing, and online filing through eSmart Tax.