Liberty Tax Outlines the Latest Tax Circumstances That Pertain to Children and Families for Filing a 2008 Tax Return
January 27, 2009 // Franchising.com // (Virginia Beach, VA) From the cradle to college, children's lives greatly impact the tax situations of their families. Liberty Tax Service reminds you that for filing a 2008 tax return, there's a change in the method in which children's investments are taxed. Any child born on December 31st of 2008 or before can be claimed for the entire year of 2008.
"Also, on a positive tax note, hiring your children as employees in a small business can be advantageous tax-wise," said John Hewitt, CEO and Founder of Liberty Tax Service.
"Kiddie Tax" Change Affects Children's Investment Income
Starting in 2008, there's a change in the age at which children with investment income can be taxed at their parents' tax rate. 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 aged 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 then $1,800, 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 $3,500. Children who are working cannot claim their own exemptions if they qualify to be claimed as a dependent on the parent's return.
The Child Tax Credit
The child tax credit remains $1,000 for a qualifying child under age 17. A qualifying child is 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. If you do not receive all of the child tax credit, you may be eligible for the additional child tax credit which is refundable. 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 give a larger credit. The percentage used to determine the credit is 15% of the earned income over $8,500.
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 child care in order to go to work. Qualified expenses may be allowed for up to $3,000 for one eligible individual ($6,000 for two or more). Persons employed or looking for work that must pay someone to care for dependents under age 13 or for a qualified disabled person may also be able to take this credit.
The 2008 Earned Income Credit (EIC)
The EIC income level limits for low and middle-income taxpayers with children are:
- More than one qualifying child - less than $38,646 for single taxpayers, and $41,646 for married filing jointly.
- One qualifying child - less than $33,995 for single taxpayers, and $36,995 if married filing jointly.
Children and Higher Education Expenses
Up to $4,000 of qualifying higher education expenses such as tuition and fees you paid in 2008 for yourself, a spouse, or a dependent may be deductible on your 2008 tax return as an adjustment to income.
The maximum amount of the Hope credit has increased to $1,800 ($3,600 in a Midwestern disaster area).The amount of the Hope credit (per eligible student) is the sum of 100% of the first $1,200 of qualified education expenses paid for the eligible student and 50% of the next $1,200. Instructions for Form 8863, Education Credits, explain the calculations for regular and Midwestern disaster area students for both tuition credits.
For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 ($4,000 for students in a Midwestern disaster area) for qualified education expenses paid for all students enrolled in eligible educational institutions. The credit is 20% of the first $10,000 of qualified education expenses or 40% for students in the Midwestern disaster area.
Only one tuition credit or deduction is allowed for each qualified student on your return, no matter how much tuition was paid in 2008. Each benefit has a AGI limit for the application of the credit or deduction to a return. Filing status Married Filing Separately does not qualify to claim these benefits.
The maximum adoption credit and exclusion amount is $11,650. This is also the maximum exclusion from income under an employer's adoption assistance program. The full credit will be allowed for adopting a special needs child, regardless of whether the taxpayer has qualifying expenses.
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.
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 6,000,000 individual income tax returns and currently operates over 3,000 offices throughout the United States and Canada.
Liberty Tax Service provides computerized income tax preparation, electronic filing and refund loans. With an emphasis on customer service including audit assistance, a money back guarantee, and free tax return checking, Liberty Tax Service is well known for its strong commitment to its client base.
With 40 years of tax industry experience, Hewitt stands as the most experienced CEO in the tax preparation business, having also founded Jackson Hewitt Tax Service (NYSE: JTX).