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Federal Employees News Digest : April 1, 2013
April 1, 2013 Vol. 62, No. 35 7 Visit us on the internet at www.FederalDaily.com In this second of two columns discussing how federal employees can reduce their federal income tax liability without having to itemize, this week's column discusses tax credits. A tax credit reduces an individual's tax liabil- ity "dollar for dollar" and therefore the amount of fed- eral income taxes owed. This column will discuss the tax credits that are available to employees with dependent children for tax year 2012. Child Tax Credit Individuals with one or more qualifying children may be able to claim a credit of up to $1,000 per qualifying child. A qualifying child must be under age 17, be claimed as a dependent, a U.S. citizen, resident alien or national. The credit is phased out by $50 for each $1,000 or frac- tion thereof of adjusted gross income (AGI) above the beginning phase-out amount. The AGI where the credit is completely phased out depends on the number of qualify- ing children, as shown in the table at the bottom of the page. Child and Dependent Care Tax Credit Employees can claim a tax credit for a percentage of their dependent care expenses that enable them to work. The credit percentage ranges from 20 percent to 35 percent, with a maximum credit of 20 percent for individuals with an AGI over $43,000. An individual must meet the following conditions to claim the credit: (1) the care must be for one or more qualifying persons identified on IRS Form 2441; (2) the individual (and spouse, if married) must have earned income (but see below for exceptions); (3) dependent care expenses are not eligible for the credit if paid to the spouse or to a per- son the individual claims as a dependent; (4) if married, the individual must file a joint tax return; and (5) the individual must provide the name, address and taxpayer identification number of the care provider on IRS Form 2441. Qualifying persons for the purpose of credit include: (1) the individual's qualifying child under age 13 whom the individual can claim as a depen- dent; (2) the individual's dependent who is physically or mentally incapable of caring for himself or herself and who lives in the same residence as the individual throughout the tax year; or (3) the individual's spouse who is physically or mentally incapable of caring for himself or herself. Qualifying expenses include the of cost of day-care centers, house- hold employee expenses, and expenses for children in nursery school and preschool, before and after school care of children in kindergarten and above, and day camp. If one spouse is a full-time student or disabled, then earned income is deemed to be: (1) $250 per month with one qualifying individual; and (2) $550 per month with two or more qualifying individuals. Education Tax Credits For 2012, the American Opportunity credit and the Lifetime Learning credit are available educational credits. The education credits are determined based on quali- fied tuition and/or related expenses of the individual, the individual's spouse, or the individual's tax dependent, usually a child. These credits are not available to married individuals who file as married filing separately. Note that if a parent claims a child as a dependent, only that parent may claim the education credits for that child. If the parent is eligible to but does not claim the student as a dependent, the child can claim the educational credits. Expenses qualify in the tax year paid. Payments must be for an aca- demic period, such as a quarter or semester that begins either in the same tax year or in the first three months of the following tax year. Tuition and fees, and course-related books, supplies and equipment are considered to be qualifying expenses for both education credits. The American Opportunity maximum credit is $2,500 per student---100 percent of the first $2,000 of eligible expenses and 25 percent of the next $2,000 of eligible expenses. If an individual has more than one dependent enrolled in a college or university, then each dependent is eligible for the credit. Dependents must be enrolled in a program that leads to a degree, certificate or otherwise recognized educational credential. The credit is also subject to phase-out based on a taxpayer's AGI: For married filing jointly, the phase-out range is $160,000 to $180,000; for single, head of household or qualified widow(er), the phase-out range is $80,000 to $90,000. The Lifetime Learning credit is 20 percent of up to $10,000 of qualified expenses, maximum $2,000. The credit is per individual filer, not per student (one credit per family). The credit is available for undergradu- ate, graduate, professional degree students and individuals acquiring or improving their job skills. There is no limit on the number of years for which the credit can be claimed for each student. But the credit is sub- ject to AGI phase-outs. For married filing jointly, the phase-out range is $104,000-$124,000; for single, head of household or qualifying widow(er), the phase-out range is $52,000-$62,000. Edward A. Zurndorfer is a Certified Financial Planner and Enrolled Agent in Silver Spring, MD. He is also a registered representative with FSC Securities Corporation, branch address: 833 Bromley St. - Suite A, Silver Spring, MD 20902. Phone: (301) 681-1652. Securities offered through FSC Securities Corporation,member FINRA/SIPC. EZ Accounting and Financial Services and FSC are independent companies. informed investor Employees should utilize tax credits when preparing returns Child Tax Credit AGI "Phase-Out" Filing Status Beginning phase-out 2012 Ending phase-out One Child Two Children Three Children Four Children Five Children Married Filing Jointly $110,000 $129,001 $149,001 $169,001 $189,001 $209,001 Single, Head of Household, Qualifying Widow(er) $75,000 $98,001 $114,001 $134,001 $154,001 $174,001 Married Filing Separately $55,000 $74,001 $94,001 $114,001 $134,001 $154,001
March 25, 2013
April 8, 2013