The New Tax Laws -- Dependent Credits

Child and Dependent Credits:

Child Tax Credit

Child Tax Credit: $1,000 per qualified child

The Tax Act of 2003 revised this timetable.

Year	Credit per Child	The qualification rules still apply: dependent under 17, citizen or resident, your child/descendant or adopted/foster child.
2001-2004:	$600
2005-2008:	$700
2009:	$800
2010:	$1,000

Also, starting in 2001 the child tax credit becomes partly refundable to the extent earned income exceeds $10,000. (2003 Tax Year: $10,500) (2004 Tax Year: $10,750) Previously, only taxpayers with three or more dependents could get a refundable credit (if their social security/medicare tax exceeded any earned income credit, and within qualified income range). Taxpayers with one or two dependents would not get credit if their tax liability was already zero.

This change will give them some refundable credit: 10% of the earned income over $10,000, up to the full credit; the percentage increased to 15% in 2004. This new calculation also applies to taxpayers with three or more dependents (who will calculate the extra credit under the old and new method and take the better result).

What it means:	The child tax credit increases, and if you were not getting the full amount because you had no tax, now you'll get some or most of it in added to your refund, if you make over $10,750.

Child and Dependent Care Expenses

In 2003, several changes occurred:

The amount of expenses eligible for credit increases from $2,400 to $3,000 for one child and from $4,800 to $6,000 for two/more children.
The maximum credit calculation (at the lowest income range) increases from 30% to 35% of your eligible expenses. (The range will now be from 35% to 20%.)
The credit percentages don't start decreasing until at $15,000 adjusted gross income instead of $10,000.
The adjusted gross income at which you only get the minimum 20% of expenses for credit calculation increases from $28,000 to $43,000.

What it means:	maximum credit increases from $720 to $1,050 for one child from $1,440 to $2,100 for two/more children. minimum credit increases from $480 to $600 for one child from $960 to $1,200 for two/more children. You can earn more money before hitting the minimum credit percentage.

Adoption Credit

In 2002, several changes occurred:

The credit was extended; originally it was only going to apply to special needs children after 2001.
Maximum credit and employer-exclusion benefits increased from $5,000 to $10,000.
The income range where credit phase-out occurs increased to between $150,000-$190,000.
The credit was allowed against the Alternative Minimum Tax calculations.

And effective since 2003, a taxpayer can take the credit for a special needs adoption in the year that adoption is finalized, regardless of the amount of expenses, if any.

What it means:	If you were going to adopt a puppy, you might as well adopt a kid to take care of it. You get a tax credit for the kid, but not the puppy.

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