They'll be worth even more in 2003
Kids can be a drain on the pocketbook most of the time, but come April 15, they can actually add a bit to your bottom line. Congress already has made several changes in the tax code for the 2002 tax year that make kids more affordable. Even more changes will phase in over the next few years. For starters, each child under 17 is worth $600 under the federal child tax credit. That figure grows to $700 in 2005; $800 in 2009, and $1,000 in 2010. Congress also is working to make college more affordable. Parents with kids already in school can deduct up to $3,000 spent on college tuition and fees in 2002. Those with future scholars can take advantage of significantly increased tax advantages in college savings plans. The contribution limit for Coverdell Education Savings Accounts (the savings plans formerly known as Education IRAs) quadruples this year to $2,000 per kid. The money grows tax-free and stays tax-free, provided it is used for college expenses. In addition, the contribution limit on 529 college savings plans has been lifted altogether. Those plans also accumulate tax-free and withdrawals are tax-free, provided the money is used for school expenses. For working parents of little ones, the federal childcare tax credit remains at $2,400 for one child and $4,800 for two or more. But for the 2003 tax year (tax returns we’ll file in April 15, 2004), the tax credit jumps to $3,000 for one child and $6,000 for two or more. While it won’t help on the taxes due this April, it can give parents more finanical flexibility in hiring caregivers now. Two things to remember: 1) your caregiver has to be paying taxes on the money he or she makes caring for your kids and, 2) the tax benefit phases out as income rises. Lower-income families have one more tax benefit: the earned income tax credit. To qualify, adjusted gross income must be less than $28,281 with one child and $32,121 with two or more kids. Taxpayers with family income of less than $33,000 can get free tax-return assistance at 21 tax centers around Chicago. For more information, call the city’s 311 non-emergency number.
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