PARSIPPANY, N.J., Feb. 7 // PRNewswire-FirstCall // -- In an effort to further define the tax laws surrounding children and dependents, the Internal Revenue Service (IRS) issued Notice 2008-05, which clarifies when an unrelated child may be claimed as a dependent. Under this new Notice, for the first time taxpayers who live with and provide support for another person's child may now be able to claim that child as a dependent. Jackson Hewitt Tax Service(R), an industry leader providing full service individual federal and state income tax preparation, urges consumers who believe they may be impacted by this clarification to reach out to a knowledgeable tax preparer for guidance.
"This new, broader definition of a qualifying dependent will provide many taxpayers who are responsible for a child with an added benefit when filing their 2007 tax return this tax season," comments Mark Steber, vice president of Tax Resources at Jackson Hewitt Tax Service. "However, there are still many nuances in this area of tax law. So it is important that consumers receive the right information in order to understand which credits they qualify for and how to accurately file for them."
The IRS clarification means that it is no longer necessary for a child to be a blood relative or related by marriage, in order for the individual supporting that child to claim a deduction. Taxpayers who are eligible to claim the child as a dependent will also be able to claim qualified day care expenses.
Those who claim this credit need to be aware that it may impact their filing status or other child-focused credits. For example, taxpayers will not qualify for Head of Household filing status as a result of this notice -- nor will taxpayers be eligible to claim such additional child-related credits as the Child Tax Credit, the Additional Child Tax Credit or the Earned Income Tax Credit.
Previously, one of the rules for assessing if an individual was a "qualifying relative" was to determine if that same young person was considered a "qualifying child" for another taxpayer. The new Notice clarifies this -- stating that if a taxpayer is not required to file an income tax return (or if the taxpayer files an income tax return only to obtain a refund of withheld income taxes), then the young person in question is not considered a "qualifying child" of the taxpayer.
Here is one example of how the new Notice might affect a taxpayer:
-- Barbara and her three-year-old daughter, Catherine, live with Barbara's boyfriend, Alan. Alan is not Catherine's father.
-- Alan's earned income is $30,000, and Barbara has no income.
-- Alan provides all of the support for Barbara and Catherine, and pays the entire cost of keeping up the home.
-- Catherine meets the rules to be Barbara's qualifying child, but Barbara is not required to file a tax return.
-- If Barbara does not file, Catherine is not her qualifying child. So when Alan files he can claim Catherine as his qualifying relative under the new dependent exemption.
"Filers should also know that they may be able to amend a previous year's return," added Steber. "Speaking with a knowledgeable Jackson Hewitt tax preparer is a good way to find out if the new changes have an affect on previous year's returns, resulting in a possible refund for those years." About Jackson Hewitt Tax Service Inc.
Jackson Hewitt Tax Service Inc. (NYSE: JTX) is an industry leader providing full service individual federal and state income tax preparation. Most offices are independently owned and operated. The Company is based in Parsippany, New Jersey. More information may be obtained at http://www.jacksonhewitt.com. To locate the Jackson Hewitt Tax Service(R) office nearest to you, call 1-800-234-1040.
SOURCE Jackson Hewitt Tax Service Inc.