European Stars and Stripes (Newspaper) - February 16, 1994, Darmstadt, Hesse                                Focus the a kiddie tax children pay too by the associated press. Reporting your child s investment income on your tax return will avoid some paperwork but it can be expensive. A. A. A the option is one Way to meet the Quot kiddie tax Quot a the requirement that investment income Over $1,200 of a. Child under age 14 be taxed at the parents top rate. Under the other the child reports the income on his or her own  in either Case the aim is to prevent parents from evading taxes by splitting their investment earnings with a child who probably would be taxed at a lower rate or not at All. Most children pay no More than a 15 percent rate parents rates can go As High As 39.6 percent. The requirement covers a child s investment income Only a such As interest dividends and capital gains a not wages tips or other Money earned from personal services. If a child files a return investment income Over $1,200 is reported on form 8615. The parents taxable income is taken into account when figuring what the child pays. Parents May opt to report on their return if the child s total 1993 income was More than $500 but less than $5,000 and consisted solely of interest and dividends. The parents attach form 8814 to their return a separate 8814 is required for each child whose income is being reported. Form 8814 May result in slightly higher tax. It also will increase the parents adjusted Gross income a which could reduce any deduction claimed for medical expenses contributions to individual retirement accounts and miscellaneous Job related expenses. For upper income families it also could accelerate the phaseout of personal exemptions and the limitation on certain itemized deductions. Some Basic tax rules applying to children with income a a dependent child who has Only investment income is allowed a Standard deduction of $600, rather than the $3,700 that generally applies to a single person. Thus he or she must file a return if total income exceeded $600 and included As much As $1 from investments. A if the child had no investment income and can be claimed As a dependent by a Parent the child must file a return once earnings exceed $3,700. A a child who can be claimed As a dependent by a Parent or someone else is denied the usual $2,350 personal exemption. A in general a Parent May not claim a dependency exemption for a child whose Gross income last year was $2,350 or More. But there is no income limit if the child was under 19 at year end or was a full time student under 24. A amps file a caregiver at the pin Tamare child development Center near Naples Italy helps her charges with breakfast. Education. Expenses May not exceed your earned income such As wages and tips. If you Are married these allowable expenses must be no More than the income of the spouse who earned less. Don t claim the credit for  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. You must report the name address and social Security number of your dependent care provider. When you hire a baby Sitter you become an employer and must withhold social Security and medicare taxes from any household employee s wages that were $50 or More in any Quarter. For 1993, 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. Also if you paid $1,000 or More in wages during a Quarter in 1992 or 1993, you Are liable for a unemployment benefits tax of 6.2 percent of the worker s first $7,000 of Cash wages but you get a credit of up to 5.4 percent for payments to the state unemployment fund. A free irs publication no. 503, explains the credit publication 926 outlines taxes you must pay As an employer. Continued from Page 19 would be determined by multiplying the first $4,800 of expenses by 20 percent yielding a tax credit of $960. That is subtracted directly from tax owed. Do you qualify for the credit a dependents you May be eligible if in order to work or seek work you hire someone to care for a dependent child who is disabled or was under age 13 when the care was provided any other dependent such As an elderly Parent or a spouse who is not capable of self care. You must have furnished Over Jialu the Cost of maintaining a Home for the dependent. A your work you and your spouse if capable of self care must have had earnings in 1993. 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. A expenses you May include services of a housekeeper maid or Cook but not a Gardener or Driver. The dependent s food and clothing Are not eligible food for a live in housekeeper is. You May include expenses of Nursery school or Day care outside the Home for a child under 13, but Only the portion that pays for care a no timing important in determining by the associated press timing is a big Factor where claiming tax exemptions is concerned. If your new daughter was born dec. 31, 1993, you May claim her As a dependent for the full year. Or assuming other conditions were met if the relative you supported died anytime during the year he or she was your tax dependent for the entire year. A taxpayer is allowed one exemption plus one for each dependent. Another is allowed for a spouse on a joint return. A couple who went through divorce proceedings in 1993 May still file a joint return claiming two exemptions even though one spouse had no income a so Long As no final decree was entered last year. Each dependent exempts $2,350 from taxation saving the typical family $352,50. To qualify a dependent must meet five tests a relationship he or she must have lived with you throughout 1993 except for being temporarily absent due to school military service vacation or illness or must be a relative. That can be a child grandchild stepchild Parent grandparent brother sister or certain in Laws. It also can include a blood related Uncle aunt Nephew or Niece a but not their spouses. An unmarried mate counts unless having a Ive in Lover violates your state Law. A income in general terms a dependent must have had 1993 Gross income under $2,350. That does not include tax exempt income such As welfare benefits and the nontaxable part of social Security. But there is no income limit if the dependent is your child and was under 19 at the end of 1993, or was a full time student and under 24 at year s end. Full time Means a full class Load during any five months of the year a citizenship As a Rule the dependent must be a . Citizen or resident alien Ora resident of Mexico or Canada. A spouse is not considered a dependent a he or she is a personal exemption a and does not need to meet these citizenship requirements a no joint return you generally May not claim any person who files a joint return with someone else. A support you must have provided More than half the dependent s financial support last year. This includes food shelter clothing transportation medical expenses education child care services recreation and spending Money. Life insurance premiums do not count As support. If you and others join to pay More than half the support of a dependent a such As a Parent a but nobody alone pays More than half you May claim the full exemption by contributing More than 10 percent. But the others must give up their right to the exemption by signing form 2120, a multiple support declaration. A divorced Parent who does not have custody of a child May take an exemption if the other Parent agrees in writing to give up the claim or if the claim was authorized by a pre-1985 agreement and you provided at least $600 in child support. Irs publication 504 has details. 20 the stars and stripes wednesday february 16, 1994