Tax Law Changes for 2005 Tax Year

Posted on 12. Jan, 2006 by in Taxes

Since you have no doubtedly already begun working on your taxes I thought that I should point you to the recent IRS Publication outlining recent changes to the 2005 tax law. Among my favorites is the uniform definition of a qualifying child. Previously, there were a half dozen definitions of a “qualifying child” depending on what credit or exemption you were trying to calculate. Finally, the IRS has simplified things a bit. Beginning in 2005, one definition of a qualifying child will apply for each of the following tax benefits.

* Dependency exemption.
* Head of household filing status.
* Earned income credit (EIC).
* Child tax credit.
* Credit for child and dependent care expenses.

In general, all four of the following tests must be met to claim someone as a qualifying child.

Relationship test:

The child must be your child (including an adopted child, stepchild, or eligible foster child), brother, sister, stepbrother, stepsister, or a descendent of one of these relatives.

An adopted child includes a child lawfully placed with you for legal adoption even if the adoption is not final.

An eligible foster child is any child who is placed with you by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction.

Residency test.

A child must live with you for more than half of the year. Temporary absences for special circumstances, such as for school, vacation, medical care, military service, or detention in a juvenile facility count as time lived at home. A child who was born or died during the year is considered to have lived with you for the entire year if your home was the child’s home for the entire time he or she was alive during the year. Also, exceptions apply, in certain cases, for children of divorced or separated parents and parents of kidnapped children.

Age test.

A child must be under a certain age (depending on the tax benefit) to be your qualifying child.
Dependency exemption, head of household filing status, and EIC.

For purposes of these tax benefits, a child must be under the age of 19 at the end of the year, or under age 24 at the end of 2005 if a student, or any age if permanently and totally disabled.

A student is any child who, during any 5 months of the year:

1. Was enrolled as a full-time student at a school, or
2. Took a full-time, on-farm training course given by a school or a state, county, or local government agency.

A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or night school.
Child tax credit.

For purposes of the child tax credit, a child must be under the age of 17.
Credit for child and dependent care expenses.

For purposes of the credit for child and dependent care expenses, a child must be under the age of 13 or any age if permanently and totally disabled.

Support test.

A child cannot have provided over half of his or her own support during the year.

For purposes of the EIC only, the Support test does not apply.

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