CREDITS: DEPENDENT CARE, CTC, ETC

NON-REFUNDABLE CREDITS  Non-refundable credits reduce the amount of tax owed.  If no tax is owed, or if the credit is greater than the tax owed, the excess credit is not refunded to the taxpayer.  Non-refundable credits appear on lines 47 through 53 of Form 1040.

REFUNDABLE CREDITS  Refundable credits also reduce the amount of tax owed.  But if the credits are greater than the tax, the excess is refunded to the taxpayer.  Refundable credits appear in the payment section of the 1040 along with tax withheld (lines 63-71).

FOREIGN TAX CREDIT  A taxpayer can often take a nonrefundable credit on US taxes for taxes paid to a foreign country on income from that country.  This credit is usually out of scope for us, except for preparers with international certification.  However, if foreign taxes appear on a 1099-INT or 1099-DIV, we can take care of them. Enter the amount on line 46 of the 1040.

CREDIT FOR CHILD AND DEPENDENT CARE EXPENSES  This is a nonrefundable credit that allows taxpayers to reduce their taxes by a percentage of their expenses for child and dependent care.  It may be claimed by taxpayers who, in order to work, look for work, or attend school full-time, pay someone to care for their qualifying:  Dependent child under the age of 13;  Spouse or dependent who is unable to care for him/herself.

CHILD AND DEPENDENT CARE EXPENSES cont’d.  The taxpayer (both, if filing jointly) must have earned income or be full-time student(s).  The credit is a max. 35% of up to $3,000 of a taxpayer's work-related expenses for one child ($6,000 for two or more).  Any dependent-care benefits received from an employer (see W-2, box 10) must be subtracted from the $3,000.  Only the custodial parent may claim this credit.

CHILD AND DEPENDENT CARE EXPENSES cont’d.  A married person filing separately may not take this credit.  Credit cannot be taken for amounts paid to a dependent, the other parent of the child, or a child of the taxpayer who is under 19.  The taxpayer must provide the name, address and SSN or EIN of the care provider.  Information for this credit is entered on form  A taxpayer who received dependent care benefits from an employer must complete Form 2441even if no payments were made for such care.

RETIREMENT SAVINGS CONTRIBUTION CREDIT  A nonrefundable credit for contributions to a retirement plan.  For an employer-sponsored plan, the information appears on the W-2.  For an IRA noted on the intake form, enter the taxpayer’s information on the IRA worksheet.  Either form will prompt you to complete Form The calculations are done by TaxWise.

CHILD TAX CREDIT  The child tax credit is a nonrefundable credit of up to $1,000 per qualifying child.  Those whose tax liability is small (or zero) will not receive all (or any) of the child tax credit because there is little (or no) tax to reduce.  However, such taxpayers may be able to take the additional child tax credit (which is refundable).

ELIGIBILITY  To claim the child tax credit, the taxpayer must have at least one qualifying child, who:  Can be claimed as a dependent;  Is under 17 at the end of the tax year;  Did not provide over half of his/her own support;  Lived with the taxpayer for more than 6 months of the tax year;  Is a US citizen, US national, or US resident.  (Note: for divorced, etc. parents, the CTC can be claimed by the non-custodial parent if the custodial parent has released the dependency exemption to the other parent.)

FIGURING CHILD TAX CREDIT  It is based on the taxpayer’s tax liability, modified adjusted gross income (MAGI), and filing status.  The amount of the credit may be reduced if the taxpayer's:  Tax liability minus the other nonrefundable credits is less than the maximum child tax credit, or  MAGI is above the limits for the taxpayer’s filing status.

ADDITIONAL CHILD TAX CREDIT  Some taxpayers who do not get the full $1,000 of the child tax credit may qualify for the additional child tax credit, which is refundable.  The credit is generally based on the lesser of:  15% of the taxpayer's taxable earned income that is more than $3,000, or  The amount of unused child tax credit (caused when tax liability is less than allowed credit)

Entering the information  TaxWise will generate the necessary forms when data about dependent children shows they qualify.  If more information is needed to complete the forms, the system will prompt the preparer to do this.  TaxWise calculates both credits.