Child tax credit will grow up to twice its size.(The Providence Journal) website child tax credit 2012
Knight Ridder/Tribune News Service June 1, 2001 | Downing, Neil In 1997, Congress created a feature in federal tax law that gave special recognition to the importance of children and families. Known as the “child tax credit,” it essentially said this: For every child you have under 17, we’ll lop a few hundred dollars off your tax.
It took a while for taxpayers to grasp the significance. The credit was, after all, only one piece of a much bigger tax bill at the time. The credit didn’t take effect immediately, either. And because the credit was pro-family, and was created largely by conservatives, the news media pretty much ignored it.
Nevertheless, millions of families have since taken advantage of it. Now, under a new tax bill approved by Congress on Saturday, the child tax credit will get a lot bigger. When it first took hold in 1998, it was worth $400 per child. In 1999, it rose to its current level of $500. Under the new tax bill, expected to be signed by President Bush soon, the credit will jump to $600 immediately, and will reach higher levels in later years:
_$600 per child per year, 2001 through 2004.
_$700 per child per year, 2005 through 2008.
_$800 per child in 2009.
_$1,000 per child per year, 2010.
In other words, by the time the credit is fully phased in, it will have doubled.
Linda M.S. Carlson, president of the Rhode Island Society of Enrolled Agents, called the credit “a wonderful thing.” And it will have an even greater impact as lower federal tax rates are phased in: families generally will have a bigger child tax credit to apply against a lower federal income tax liability, said Carlson, who is also president of TaxPro Services Inc. of West Warwick, R.I.
That’s not all. Under the old law, the credit generally wasn’t “refundable.” So no matter how much of the credit you were claiming, it could only reduce your federal tax to zero; you couldn’t get a refund for any surplus.
Under the new tax bill, you will _ within limits (and subject to the usual, maddeningly complicated formulas). This means that, in general, families with low incomes may not only use the credit to cut their federal tax liability to nothing, but could get some money back besides.
Despite the changes brought about by the tax bill, not everyone will be eligible for the child tax credit, said Mark A. Luscombe, a lawyer, accountant and principal tax analyst at CCH Inc., of Riverwoods, Ill., a national publisher of tax and legal information. For instance, you may be eligible for only a partial credit _ or none at all _ if your adjusted gross income exceeds $75,000 if you’re single, or $110,000 if you’re married and filing a joint return, he said.
Also, some pro-family proposals either did not make it into the final bill, or were revised. For example, the biggest provisions that are intended to combat the tax code’s “marriage penalty” won’t kick in for several years.
Still, there are enough features in the new tax bill that “I’d call it family-friendly,” Luscombe said. Besides the child tax credit, there are these elements:
_The maximum tax credit you may claim for adoption-related expenses _ currently $5,000 per eligible child ($6,000 for a special-needs child) _ will jump to $10,000 next year, and it’ll apply to all adoptions. Also next year, more people will qualify for the break. Now, a family generally gets a partial break _ or no break _ if their adjusted gross income exceeds $75,000. Starting in January, this income threshold will double, to $150,000. web site child tax credit 2012
_Families with child-care expenses will get a bigger tax break starting in 2003. If you have one child in care, current law generally lets you claim 30 percent of your first $2,400 in expenses _ so your maximum “dependent care” credit is $720. Under the new tax bill, you’ll be able to claim 35 percent of the first $3,000 in expenses, for a maximum credit of $1,050.
If you have more than one child in care, current law generally lets you claim 30 percent of your first $4,800 in expenses _ for a maximum credit of $1,440. Under the new tax bill, you’ll be able to claim 35 percent of your first $6,000 in expenses _ for a maximum credit of $2,100.
(Also, the amount of family income at which the credit begins to phase out will increase somewhat. Still, these thresholds remain fairly low, so most people still won’t qualify for the maximum credit, Luscombe said.) _Employers will be offered incentives to provide day care for the children of workers. Starting next year, employers will be eligible for a tax credit of 25 percent of child-care expenses they offer.
X X X (Neil Downing is a Journal staff writer and author of “Maximize Your Benefits: A Guide for All Employees.” If you have questions about your money matters, call us at 1-401-277-7484 or 1-888-697-7656 and leave a message. (When calling toll-free, please ask for ext. 7484.) We can’t reply personally; as many questions and issues as possible will be addressed in this column.) X X X Distributed by Knight Ridder/Tribune Information Services.
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Downing, Neil
