Since there’s been some discussion on the blog lately about whether or not parents should receive tax “benefits” in the form of exemptions and credits, I thought I would make it the Fix the Tax Code Friday question:
Should parents be entitled to exemptions and credits to offset the additional costs of raising children? Or should having children be a tax-neutral event?
There are absolutely NO plans in Congress to distribute monthly stimulus payments or rebates to any taxpayers.
If you see any emails or ads that say otherwise, be advised that these are from private companies selling products or services. This information is NOT from the IRS, the Department of the Treasury or any related government agency.
Taxpayer asks:
Hi Kelly!
I just received my tax rebate, but it was for $600 and I am a single mom so I though it would be $900. I was just wondering how I go about figuring out which amount is correct. Will I receive the $300 later for my son?
You are the only website I have been able to find useful when it comes to anything about taxes. I appreciate it… Thank you!
Taxgirl says:
You should receive all of your rebate in one payment unless you specifically directed that your 2007 tax refund be split (this is unusual and you would know if you had done so).
I’ve actually received a lot of variations on this question. And while I clearly don’t know your personal details, here is my best guess: I’m guessing that you did receive your rebate for your qualifying child ($300) but that your own rebate amount was reduced from $600 to $300.
Your payment would be reduced to $300 as a single filer if you had no net income tax liability for 2007 - check your 2007 tax return for details. You would receive $600 if you are married filing jointly if you had qualifying income of at least $3,000.
To figure your net income tax liability on a form 1040, check the amount shown on Line 57 plus the amount on Line 52:
On form 1040EZ, it is the amount shown on line 10:
What counts as qualifying income? It is the total of:
Wages reported on federal form W-2; Net self-employment income;
Social Security benefits reported in box 5 of the 2007 Form SSA-1099;
Railroad Retirement benefits reported in box 5 of the 2007 Form RRB-1099;
Veterans’ benefits received in 2007, including veterans’ disability compensation and disability pension or survivors’ benefits received from the Department of Veterans Affairs; and
Nontaxable combat pay if you chose to include it as earned income on your 2007 return.
Qualifying income does not include Supplemental Security Income (SSI).
If you are entitled to receive the basic amount, you may receive an additional $300 for each qualifying child. A qualifying child is under the age of 17 and has a valid Social Security number - an ITIN is not sufficient.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
The IRS has updated its website to address questions about rebates. Mostly, it’s the same old story - no real news on why payments may not be on time. But there are some concrete answers about Refund Anticipation Loans (RALs), Refund Anticipated Checks (RACs) and tax preparer issued debit cards.
With respect to Refund Anticipated Checks (RACs), including those from tax preparers and tax software, the IRS has clarified that funds deposited into your bank account as a result of these agreements are from the financial institution associated with your software provider or tax preparation provider, and not directly from the IRS. Therefore, taxpayers who use RALs, RACs or similar loans will not receive their rebates by direct deposit and will instead receive a paper check.
The IRS has also clarified that, with respect to tax account/debit cards, unless you requested a RAL through your tax professional or the stored value card or debit card account has been closed, you will receive your rebate by direct deposit. If you requested a RAL or if your account has been closed, you will receive a paper check.
Check out this commercial about enforcing the car tax:
I wonder whether commercials such as this are at all effective - or whether it’s just like those “Just Say No To Drugs” commercials that simply made folks feel better.
I spent the better part of the day working on my personal taxes (I know, I know). We’re on an extension - we’re always on extension.
The thing about doing my own taxes is that it reminds me of all of the stupid tax rules out there - you know, the ones that were either not thought out well or were clearly the result of some pandering by somebody. It is also a constant reminder that women don’t make the rules…
You see, one of the credits that you may be able to claim on your personal income taxes is the Child and Dependent Care Credit. This is, ostensibly, a good thing. But it rarely works out as good as it sounds.
If you pay someone to watch your qualifying child or dependent (generally, a child under age 13) while you work or look for work, you can, in theory claim the Child and Dependent Care Credit. The credit is not a straightforward deduction - it is rather a percentage of the amount of expenses actually paid for care. The amount claimed can be up to 35% of your child care expenses, depending upon your income.
Sounds great, right? Not really. First things first. Full-time day care for a 2 year old child costs, on average, $611 per month - or just under $7,500 per year per child. In metropolitan areas, it tends to run closer to $1,000 per month - or more than $10,000 per year per child. (source: Runzheimer International)
As the mother of three children, this means that if I work full time outside of the home (which I used to do), I can expect to spend about $30,000 on child care. Let’s assume that I make $50,000 - higher than the median income in the US. My entire after tax salary will go towards paying for child care. My tax credit, however, is limited to $6,000 for child care expenses. That’s because, for 2007, the cap is $3,000 for one child or $6,000 for two or more children.
That math puts into perspective the argument of staying at home versus working a little bit more, no? It’s not always a simple calculation.
The amount that you can claim decreases as your wages increase. This is an interesting concept because, at least theoretically, higher wage earners tend to require more hours of child care than lower wage earners. In other words, if I am working at a Center City law firm - 60 hours per week to meet my billables - I will make more money, sure, but I will spend more because my child will require more hours of care. However, on my taxes, I will receive a smaller percentage benefit for child expenses.
How much smaller? For qualifying income of $40,000 or more, the credit is 20% of the amount of expenses actually paid up to the cap. Using $50,000, that means that I could claim up to the smaller of $10,000 (20% of $50,000) or $6,000 (the statutory cap) - in other words, $6,000 even though my expenses were closer to $30,000.
So, it sucks for higher wage earners on a purely tax/economic scale but it should work out well for lower wage earners, right? Nope. This credit gets you coming and going. There is a requirement that the income used to calculate the credit is the lowest income as between you and your spouse, not an aggregate. In most - but not all - cases, this means that you calculate the credit based on the woman’s income.
Let’s look at it from the other end. If you work part time, then, and earn, say $15,000, the maximum credit that you could claim for two or more children would be $5,250 (35% of $15,000 since the rate is higher for lower wage earners) - even though you still likely spent close to your entire wages on child care.
And if you freelance or own your own business? Potentially disastrous. Qualifying income must be from wages or salaries or net earnings from self-employment. That’s right, net. Whereas I get to include my gross income from wages, I must include my net income from my business.
And this is why I’m annoyed this tax year. I lost money on my business. Not a lot but enough to put me into the red. The result? A big fat 0 in the child and dependent care credit column despite the fact that I needed child care so that I could manage my business. It doesn’t exactly reward entrepreneurs, does it?
So, if those taxpayers who make a lot of money don’t benefit - and those who find it difficult to pay for child care don’t benefit - who exactly benefits from the child tax credit? Ironically, based on pure economics, it’s someone who doesn’t need the credit at all: a taxpayer who works for wages (ideally, issued a W-2) and whose spouse makes enough money to pay for child care out of his or her salary. Maximum economic benefit - and it makes no sense.
What kind of policy are we pushing here? The clear policy message that we’re sending - mostly for mothers - is “stay at home” unless you marry well. As far as I’m concerned, staying at home should be an option that parents discuss based on their own beliefs and circumstances - not a tax policy decision but I’d love to hear what you think.
Interesting commentary on CNN about why the gas tax doesn’t make sense adn why it won’t pass.
Pay particular attention to the projected savings to taxpayers. I had not previously heard the totals (other than from Obama) and it really is nearly inconsequential. The savings for the entire summer per family is estimated to be between $28 and $70.
In 2008, the summer solstice will occur at 23:59 hours UT on 20th June (Friday). It is the first time since 1975 that it hasn’t occurred on 21st June. The summer solstice is, as you may know, the longest day of the western hemisphere.
1, At taxgirl.com - and all over b5media - we will blog at least once per hour for each hour of the day beginning at midnight our time (I’m EST). Yep, that’s 24 hours straight blogging.
2, NO pre-posting allowed. So, everything that is posted will be fresh - or as fresh as can be whilst sleep deprived.
3, Guest bloggers ARE allowed and are, in fact, highly encouraged.
Yep, that last part means that I’m going to be looking for some guest bloggers. Ideally, you would agree to “cover” for me some time between 1 a.m. and 6 a.m. EST on June 20. But even if those times don’t work for you, I’d love to have you participate. Send me an email (look for my email link in the sidebar) if you’d like to be on the guest post list (I’ll get you confirmations, how tos and more details later). You don’t have to be a tax pro or a tax guru - but you do have to write something about tax (even if it’s that you don’t like it) for the Great Blog Off.
And it gets better.
The Great Blog Off is also an opportunity to do something good. The Business Channel will be taking charitable pledges (details forthcoming). If, for example, you want to donate $1 for every hour that I blog on June 20, you would donate $24. Obviously, flat donations are also appreciated. No need to pull out your wallet now - there will be more information about this closer to the date.
The b5media Business Channel will be supporting Accion International as our charity for the Great Blog Off. The mission of Accion is:
to give people the tools they need to work their way out of poverty. By providing microloans, business training and other financial services to poor men and women who start their own businesses, ACCION’s partner lending organizations help people work their own way up the economic ladder, with dignity and pride. With just a little capital, people can grow their own businesses. They can earn enough to afford basics like running water, better food and schooling for their children.
Basically, Accion helps small businesses all over the world to become established through small, manageable loans and business advice. This concept of microlending is fabulous and their payback record is impressive.
The semester before I left for law school, my best friend, Bren, and I packed our stuff into my old Buick Regal (the former family car), affectionately named “Bessie” because she looked like a cow. We were on a mission to examine East Coast law schools that were still on my short list. It was easy enough to noodle up I-95 from Raleigh, NC, with stops in, among other places, Washington, DC (to visit Georgetown) and Philadelphia, PA (to visit Temple). We also had a trip to Atlantic City planned but that’s another post altogether…
The second that we stepped out of the car in Philly, I knew that it would be home. There was so much about the city that I adored - the buildings, the history, the people. I even handed my keys over to an attendant without even noting whether he was really a valet (we didn’t exactly have valet parking in Hampstead, NC).
Bren and I decided to pop into a few stores and “urban up” a little since I had arrived in - not kidding - short denim overalls and Birkenstocks. With my hair in braids and Brooks and Dunn on the radio, I didn’t exactly fit in.
I found a few things that I liked and hustled them over to the counter. When the cashier rang up my order, I was perplexed. It was a few dollars cheaper than I had imagined (and being a math minor, I was usually pretty spot on). The difference? Sales tax.
You see, I hail from the “tax everything” state of North Carolina. In NC, there is sales tax imposed on practically everything, including necessities like food and clothes. In PA, however, there is no sales tax imposed on certain necessities - and clothing fit the bill. For Bren and I, it was the equivalent of an extra discount.
In our case, it was a happy surprise. But many cities and states have used sales tax rates and exemptions as a calculated method of luring shoppers to spend money at their stores rather than somewhere else. In my neighboring state of Delaware, for example, they regularly tout that they are the “home of sales tax free shopping.” Does it work? You bet. Shoppers flock to places like Christiana Mall - particularly in the fall for back to school - looking for sales tax free bargains.
Is that about to change?
Of state tax rates, only South Carolina raised its state-wide sales tax rate, from 5.0 percent to 6.0 percent.
What does all of this mean? Sadly, it’s likely part of a trend. As the economy turns sour, cities and states scramble to find revenue. The federal government is in no position to help. This is particularly devastating for metropolitan areas where the federal government has imposed regulations requiring action on the part of municipalities that might not have the funds to comply. Examples include No Child Left Behind legislation and Homeland Security programs - both are federally mandated but largely funded on the state level.
What about where you live? Are you seeing any difference in sales tax rates?
Taxpayer asks:
Heeello! I was wondering if it is true that my stimulus payment could be taken for outstanding hospital bills I have yet to pay? If so, “How will that help boost the economy?”
Thanks for your time…
Taxgirl says:
The short answer is no. Rebates are being withheld or reduced for federal obligations such as past due student loans, back taxes or child support payments.
However, if you owe money to the government as a result of your care, that would change my answer.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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