Expiring Tax Provisions

Published:

by Jim Wagoner, CPA | Partner, Director of Tax Services Group | Felicia Rupp | Member of the Tax Services Group

There are several tax provisions (the Bush Tax Cuts) scheduled to expire at the end of 2012. We have summarized the change regarding the Child Tax Credit and Dependent Care Tax Credit below. Future tax update articles will include more information on the other expiring tax provisions.

Provisions
Child Tax Credit

Bush Tax Cuts in Effect (2011-2012)

The child credit is $1,000 per eligible child.

The credit is partially refundable using earned income formula (15% of family’s earnings in excess of refundability threshold of $10,000).

American Recovery and Reinvestment Act of 2009 (ARRA) lowered the refundability threshold used in the formula to $3,000 for 2009-12.

Bush Tax Cuts Expired (Post 2012)

The child credit will be $500 per eligible child.

The child tax credit will be non-refundable for most families (the earned income credit expires.)

Dependent Care Tax Credit

Through December 31, 2012

The dependent care credit is equal to 35% of the first $3,000 of eligible expenses for one qualifying individual ($6,000 of qualifying expenses for two or more eligible individuals.) The 35% credit rate is reduced for incomes above $15,000.

After December 31, 2012

The dependent care credit will be equal to 30% of the first $2,400 of eligible expenses for one qualifying individual ($4,800 for two or more qualifying individuals.) The 30% credit rate will be reduced for incomes above $10,000.

Other Important Matters

The 0% and 15% capital gains rate expires at the end of 2012 and unless extended the rate will go to 20%. Higher capital gains rates are being proposed by the administration. So as year end nears, you may want to plan to take advantage of the current capital gains rate.

While we have written about this many times, if you have a large estate and want to minimize estate taxes, the $5 million gift tax and estate tax exclusion also expires at the end of the year. If you think this could impact you, please give us a call.