European Stars and Stripes (Newspaper) - January 22, 1992, Darmstadt, Hesse                                Uncertain time show to get a tax credit for kid care Cost by Jim Luther a tax writer aft  tax saving of up to ,440 a year is available to families who must hire a childcare worker so they can hold Down jobs. Taxpayers who qualify May claim a credit for part of their child care expenditures or take advantage of employer provided assistance whose value is not subject to tax. Any employer paid Benefit claimed reduces the amount of expenses eligible for the credit. The same benefits Are offered for those who must care for a Parent or other dependent. If you Are eligible for either Benefit you May have to calculate both to see which is More advantageous. The benefits Are claimed on form 2441 if you file the Long form 1040, or on schedule 2 if you file form 1040a. Publication 503, available free from the internal Revenue service gives a Complete rundown on How to calculate these benefits. Here Are the basics a you May accept tax free up to $5,000 a year Worth of dependent care services provided by your employer. It must be offered in a written plan that does not discriminate against lower paid workers. The $5,000 can include benefits that you pay for in a Quot flexible spending arrangement Quot or Quot salary reduction  under such a plan which is rare in Europe the employer withholds prearranged amounts from your Payi Hecks and the Money is set aside to reimburse you for dependent care expenses. Those dollars escape social Security and income taxes. You lose any Money in the account that is not paid out by Yea rend. A you May be Able to take a tax credit of up to $720 for one dependent or up to $1,440 for two or More. The credit is calculated on a maximum of $2,400 of eligible expenses for one child or $4,800 for two or More. The maximum credit is 30 percent and drops gradually As income rises to a minimum of 20 percent for those with adjusted Gross income Over $28,000. Any assistance paid by your employer or under a salary reduction plan must be subtracted from eligible expenses before the credit is calculated. Here is How the credit works qualifications. You May be eligible if to work or seek work you have to hire someone to care for a dependent child who is disabled or under age 13 any other dependent such As an elderly Parent or a spouse who is not capable of self care. You must have furnished Over half the Cost of maintaining a Home for the dependent last year. Your work. You and your spouse if capable of self care must have had earnings in 1991. This requirement is met if one spouse was a full time student during a part of each of five months during the year and the other spouse worked. Expenses. You May include services of a housekeeper maid or Cook but not a Gardener or Driver. Costs of the dependent s food and clothing Are not eligible although you May count the costs of feeding a live in housekeeper. You May include expenses of Nursery school or Day care outside the Home for a child under 1 3, but Only the portion that pays for care a not education. The total of expenses used to calculate the credit May not exceed your earned income a wages tips and the like a for the year. If you Are married these expenses must be no More than the income of the spouse with the lower earnings. The credit May not be claimed for dependent care payments to your child under the age of 19 or to any person who can be claimed As a dependent by you or your spouse. Hiring someone to care for your dependent makes you an employer. As a Rule if you paid any household employee wages of $50 or More in any Quarter you must withhold social Security and medicare taxes. That Means that for 1991, you should have withheld 7.65 percent of wages added another 7.65 percent As the employer s share and submitted the Money along with form 942 to the irs. Too if you paid $1,000 or More in wages during a Quarter you Are liable for an unemployment benefits tax of 6.2 percent of the worker s first $7,000 of Cash wages. For americans in Europe these payroll obligations do not apply if the payments Are made to individuals subject to local National tax Laws. In such cases military Legal a it it a Tarp of Tirol Rabin provide the appropriate information. Irs publication 926 tells All you need to know about stateside employer taxes. Surviving the a kiddie tax and other tax woes by the associated press different set of tax rules applies if you have dependent children with income of their Adit t or Depe own. Of a f or one thing a dependent child who Lias any investment income is allowed a Standard deduction of no More than $550, rather than the $ 3,41 0 that generally applies to a single person. Second a child who can be claimed As a dependent by a Parent or someone else is denied the usual $2,150 personal exemption. Then there is something called the Quot kiddie tax which was designed to discourage parents from avoiding taxes by splitting investment income with a child who usually pays a lower tax rate. The kiddie tax could affect you if your child was under age 14 at the end of 1991. It Means the child s unearned income a such As interest dividends or capital gains a Over $1,100 must be taxed at your own top Rale assuming that is higher than the child s rate. This lax is calculated on form 8615, which is tiled in the name of the child. Ii the child s total income was Between $501 and $1,909 and solely irom interest and dividends you May us Lude that income on your own return rather than tile a separate return Lor the child. In this Case  h i m m 88 i 4 to your return. Unless doing your children s returns involves a significant amount of work you probably will be better off not taking this option. It could raise your family s total tax Bill. Adding your child s income onto your return will raise your adjusted Gross income and could reduce any deduction you claim for medical expenses contributions to individual retirement accounts and miscellaneous Job related expenses. If your income is High enough it also could subject you to the new phaseout of personal exemptions and the limitation on itemized deductions. The Quot kiddie tax Quot applies Only to investment income a not to Money your child earns mowing lawns delivering newspapers babysitting or performing any other services. As a general Rule you May not claim a dependency exemption for a child whose Gross income last year exceeded $2,150. But that requirement is waived if the child was under 19 at yearned or was a full time student under 24, no matter How much income he or she  child must file a return if he or she can be claimed As your dependent and if total income was at least $551 and included As much As $1 of interest or other unearned income. On the other hand if the child had no unearned income and can be claimed by you a return must be filed once total income exceeds $3,400.what a child will Cost you la spend at least $265,249 to raise him or her to 22 years of age according to the . Department of agriculture. That includes housing costs of $84,880, food $61,007, transportation $39,787, clothing $18, 567 and medical Bills not covered by insurance $18,567. Moreover economies of scale Are minimal. Bringing up two kids will Cost you $419,093 or about $209,546 per child three and four will run $568,959 and $758,612, respectively. Plus $63,432 for Lour years of in Home child care plus $9,100 Lor three years of preschool plus $27,606 Lor eight years of summer Camp plus $5,145 for six years of piano lessons plus $143,271 for private elementary and High school plus $1,500 for a personal computer plus $300,134 for four years of Ivy league College source. Money Magazine 8 the stars and stripes tax guide wednesday january 22, 1992