Families benefit from tax law changes
By Deborah Adamson
Advertiser Staff Writer
At tax time, there's even more reason to love your 'ohana.
Not only are there federal perks for having a family, but the state either matches or kicks in a few extra tax-saving measures, too.
"The new tax law that just passed has been really beneficial for families, because of the child tax credit and lowering of marginal tax rates," said Aaron Masuoka, a certified public accountant at Deloitte & Touche in Honolulu.
Child tax credits
For 2003, the federal child tax credit rose from $600 per child to $1,000. The child must be under 17 by the end of 2003, a U.S. citizen or resident and claimed as your dependent. But if you received an
advance on the child tax credit last year, you must subtract it. Check the IRS Web site at www.irs.gov for a tool to help remind you of that amount.
Your credit starts to shrink once your modified adjusted gross income reaches $110,000 to $130,000 for married couples filing jointly, or $75,000 to $95,000 for individuals. You can't claim the credit at all if you make more than $130,000.
Dependent care credits
Credits are offered by both Hawai'i and the federal government for the cost of caring for a dependent — a child, parents or a disabled spouse — because you had to work. Expenses that can be subtracted from your taxes include baby-sitting, caregiver and daycare.
The state tax credits are capped at $2,400 per dependent per year, or $4,800 for two or more dependents. To claim the maximum credit, your adjusted gross income must not exceed $22,000 for individuals or married couples. If you make more than $22,000, your credit falls between 15 percent and 25 percent of expenses.
On federal taxes, you can take a credit up to 35 percent of expenses, capped at $3,000 for one dependent and $6,000 for more. To get the maximum, your adjusted gross income must not exceed $15,000. Above that, the credit is between 20 percent and 35 percent.
Rental credits
Hawai'i offers a credit of $50 per person per year if your adjusted gross income is less than $30,000 for individuals or married couples. For a family of four, the credit is $200. There's an extra exemption for taxpayers 65 and older.
You must have paid more than $1,000 in rent for the year and stayed in Hawai'i more than nine months. Also, the place you rented must not be exempt from property taxes — so you can't claim the credit if you're renting a room at someone's principal residence.
Earned income credits
Taxpayers may qualify for the federal Earned Income Tax Credit if they earned less than $29,666 with one child or $33,692 for more. Without kids, your income ceiling is $11,230. Married couples filing jointly can earn $1,000 more in each category. You can calculate the credit on a worksheet.
Education credits
Don't forget the Hope Scholarship Credit and Lifetime Learning Credit, a tax break on tuition and expenses for you, your spouse or a dependent attending any accredited post-high school institution. Both credits require modified adjusted gross income below $51,000 for an individual or $103,000 for married couples filing jointly.
The Hope credit lets you take a credit of up to $1,500 per person per year; the Lifetime credit maxes out at $2,000. Also, you can take the Hope credit for only two years; there's no time limit for Lifetime.
Miscellaneous credits
Other tax breaks: Hawai'i taxpayers serving in the military reserves or National Guard can deduct the first $1,750 of their annual pay per person.
Interest earned from federal savings bonds, Treasury bills, notes or bonds are not taxed by the state, but are by the federal government. If you own them in a mutual fund, the company should send you a report on the tax-exempt amount. Interest from state and county bonds are exempt from Hawai'i and federal taxes, but those from other states are not.
If medical costs not covered by insurance exceed 7.5 percent of your adjusted gross income for the year, you can deduct them on both Hawai'i and federal taxes.
If you're a teacher, you can deduct up to $250 in classroom expenses per year from state and federal taxes.
Miscellaneous items that exceed 2 percent of your adjusted gross income can be deducted from state and federal taxes. These include tax preparation costs (including tax software), union dues, safety deposit box fees and brokerage or investment fees, among others.
Charitable contributions can be deducted without having to meet the 2 percent threshold.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
