Personal and Dependent Exemptions

Personal Exemptions

Personal Exemption is the amount of a person can exclude from personal income in calculating federal and state income tax. Generally every taxpayer is allowed one exemption for himself and, if he is married, an additional exemption for his spouse.

Ø The personal exemption amount for TY 2008 for federal tax purposes is $3,500.

Ø But the tax payer may lose the benefit of part or all of your exemptions if his adjusted gross income is above a certain amount.

Note: If the Tax Payer or Spouse, if either of them are claimed as dependents on anyone else’s tax return then none of them can claim the exemption.



Dependent Exemptions

The taxpayer supporting the dependent(s) is allowed to claim dependent exemptions and allowed one exemption for each person you can claim as a dependent ($3,500 for 2008).


We can classify Dependent Exemptions into two

1. Child
2. Relative

a.Qualifying Child- The following are the test involved to claim a child as Dependent. The child should satisfy all the conditions mentioned hereby.

b.Relationship Test: The child should be either own/step child, brother/sister (own/step/half), grandchild or adopted child or a foster child.

c. Age Test: The child must be under age 19 at the end of the year, or under age 24 at the end of the year if a full-time student, or No age limits apply if permanently and totally disabled.

d. Residency Test: The child should reside for more than 6 months with the taxpayer.

e. Support Test: The tax payer should support for more than 50% of living expenses

Note. If the child is a qualifying child for more than one person then the child can be claimed as a dependent by such person having a higher Adjusted Gross Income.


Qualifying Relative – The following are the test involved to claim a relative as Dependent. The relative should satisfy all the conditions mentioned hereby.

The relative should not be a Qualifying Child. Relatives can be Parents, In-Laws or relatives as specified by IRS.

a.Residency Test: You cannot claim a person as a dependent unless that person is a U.S. citizen, U.S. resident, U.S. national, or a resident of Canada or Mexico, for some part of the year. The relative must live with the taxpayer all year as a member of your household. If the relatives are parents or In-laws they need not live with you.

b.Gross Income Test: The gross income of the relative should be less than $3,500.

c.Support Test: The tax payer should support for more than 50% of living expenses.

Kishore Kumar Chennu, author of this post, is Senior Consultant, Corporate Trainer and founder of International Tax Business School (ITBS)training in US, UK, Indian, Canada and Australian Income Taxes (http://www.taxbizschool.com/), The views expressed in this post are personal views of the author. International Tax Business School serves students, employees, corporates by offering a wide range of services, which typically are offered by a large training centers, In-house training Centers, Corporate Training firms. Write to kishore@taxbizschool.com for additional information about International Tax Business School & its offerings. Disclaimer: ITBS does not offer legal services or legal advice, but only generic information on legal subjects.

Economic Stimulus Payment

and

Recovery Rebate Credit

Economic Stimulus Payment:

The economic stimulus bill provides tax rebates to most low- and middle-income tax payers. The IRS, however, will use your 2007 tax return to determine the payment and how much. Here are details of the plan.

Maximum payment: According to the Economic Stimulus Act of 2008, most working people will get $600 if they are single or $1,200 if they file a joint return, assuming they paid at least that much tax in federal income tax in 2007. Generally, the payment cannot be more than your 2007 net income tax liability (your regular tax liability plus any alternative minimum tax (AMT), minus any non-refundable credits you claimed other than the child tax credit).

Minimum payment: To help people who earn little or anyone who had at least $3,000 in income from a job, self-employment, Social Security and/or certain veterans’ benefits would get a flat payment of $300 if single or $600 if married filing jointly, even if they don't owe income tax.

If your 2007 federal tax liability is between $300 and $600 (single) or $600 and $1,200 (married), your payment will be equal to whatever you paid in tax.

Additional Payment: You will receive an additional payment of $300 for each child eligible for the child tax credit in 2008. To qualify, the child must be younger than 17 on Dec. 31, 2008.

Non – Residents:

Non-resident aliens are ineligible for stimulus payment (you must have a Social Security number to get a rebate). If you can be claimed as a dependent of another taxpayer you are ineligible for payment.

Recovery Rebate Credit :

Recovery Rebate Credit is one-time benefit for people who didn’t receive the full Economic Stimulus payment last year (2008) and whose circumstances may have changed, making them eligible now for some or the entire unpaid portion. This credit will increase the amount of tax refund or decreases you tax liability. There won’t be any separate check for this credit.

Generally, people who did not receive any stimulus payment, who have received less than the eligible payment, individuals who did not have valid SSN in 2007 but received in 2008, and couples who had an additional qualifying child in 2008 will be benefited by this recovery rebate credit.

On the other hand, if you would have gotten a smaller rebate based on your 2008 return, you won't have to pay back the difference.

If your adjusted gross income of 2008 is more than $75,000 ($150,000 if married filing jointly), your credit will be reduced by 5% of your AGI in excess of that amount.

The rebate - including the $300 rebate for kids - start to shrink when your adjusted gross income reached $75,000 (single) or $150,000 (married). Adjusted gross income includes income from all sources, but before most deductions and exemptions have been subtracted. The rebate is reduced by $50 for every $1,000 you earn above the income limit. Singles with more than $87,000 in gross income and couples with more than $174,000 get no rebate if they have no children.

Kishore Kumar Chennu, author of this post, is Senior Consultant, Corporate Trainer and founder of International Tax Business School (ITBS), trainers in US, UK, Indian, Canada and Australian Income Taxes (http://www.taxbizschool.com/), The views expressed in this post are personal views of the author. International Tax Business School serves students, employees, corporates by offering a wide range of services, which typically are offered by a large training centers, In-house training Centers, Corporate Training firms. Write to kishore@taxbizschool.com for additional information about International Tax Business School & its offerings. Disclaimer: ITBS does not offer legal services or legal advice, but only generic information on legal subjects.

Child Tax Credit

Child Tax Credit (CTC)

The Child Tax Credit (CTC) is an important tax credit tax payers may claim on their federal tax returns. Claiming the CTC will lower the amount of taxes that families owe to the federal government. For the tax payers with low (but some) earned income and who may not owe any taxes or owe less than the full amount of CTC, may also be able to receive a “refund” from the federal government.

1. To claim the Child Tax Credit, you must have at least one “qualifying” child and have income under a certain limit, depending upon your tax filing status (e.g., single, married filing jointly, etc.).
2. A qualifying child can be taxpayer’s child, step child, grandchild, great grand child and also adopted child.
3. Child should be under age 17 years at the end of 2008,
4. Child should have lived with the taxpayer for more than half of 2008 (A child is considered to have lived with the taxpayer for all of 2008 if the child was born or died in the year 2008 and taxpayer’s home was the child’s home for the entire time he/she was alive) and
5. Child must be resident of US or U.S Citizens or U.S National.

The Child Tax Credit (CTC) is $1,000 per “qualifying” child. It is important to note that when the credit amount is more than what is owed in taxes, the CTC is partially refundable through Additional Child Tax Credit, provided you qualify.

The CTC is “partially refundable” for some through Additional Child Tax Credit. In order to get Additional CTC, you must have taxable earned income above $8,500 for tax year 2008 and owe less in taxes than the CTC amount you may claim.

Limits on CTC: The CTC is limited to the extent of taxes you owe and if you do not owe any taxes you may not be entitled to this credit. But you may take additional child tax credit if you qualify. Credit is reduced to the extent of 5% for every increase in $1,000 above $110,000 (Married filing jointly), $75,000 (Single, Head of Household and Qualifying widow/(er) with dependent child) and $55,000 (Married filing separately).

This Child Tax Credit should not be confused with the Child and Dependent Care credit. A person by virtue of having a “qualifying” child can claim the CTC; whereas, the Child and Dependent Care credit is intended for taxpayers who pay expenses in order to provide care for children under the age of 13 (or care for persons who have a disability and can be claimed as a “dependent”) while they work.

Kishore Kumar Chennu, author of this post, is Senior Consultant, Corporate Trainer and founder of International Tax Business School (ITBS)training in US, UK, Indian, Canada and Australian Income Taxes (http://www.taxbizschool.com/), The views expressed in this post are personal views of the author. International Tax Business School serves students, employees, corporates by offering a wide range of services, which typically are offered by a large training centers, In-house training Centers, Corporate Training firms. Write to kishore@taxbizschool.com for additional information about International Tax Business School & its offerings. Disclaimer: ITBS does not offer legal services or legal advice, but only generic information on legal subjects.