Date: 2004-10-05
Jackson Hewitt® Tax Service Takes a Look at the Economic Impact of the Working Families Tax Relief Act of 2004
New and Extended Laws Bring Savings to Military Families and Low-Middle Income Taxpayers
PARSIPPANY, N.J., Oct. 5 - Now that President Bush has signed into law the new Working Families Tax Relief Act of 2004 (WFTRA 2004), providing new tax saving laws and the extension of several laws that were due to expire over the next few years, Jackson Hewitt Tax Service takes a look at the economic impact to lower- and middle-class taxpayers, including members of the military.
"The Working Families Tax Relief Act of 2004 provides great savings to families, including low- to middle-income and military families," said Mark Steber, Vice President of Tax Resources, Jackson Hewitt Tax Service. "These savings can go a long way in helping families meet their familial and financial obligations by lessening their tax burden. It's good news for families and our economy."
Military Families See Great Relief
The new tax relief act provides, for the first time, for the inclusion of combat pay as "earned income" when calculating the refundable portion of the Additional Child Tax Credit. Combat pay is otherwise excluded from gross income. Here's a look at what this can mean for an average military family:
- Married filing jointly
- 2 dependent children under 17 years of age
- $36,000 in income, which includes $9,000 in taxable wages and $27,000 in combat pay.
- Under the new law the family will receive a refundable credit amount of $2,000.
- Under the old law there was $0 refundable credit.
- The taxpayer's refund is increased by $2,000.
Also new for military families, is the ability to include combat pay for the purpose of calculating Earned Income Credit. For some families, this can spell savings in the thousands of dollars that were not available to them before. For example:
- Married filing jointly
- 2 dependent children under 17 years of age
- $18,000 in income, which includes $4,500 in taxable wages and $13,500 in combat pay.
- Additional Child Tax Credit under new law is $1,088. Under the old law it is $0.
- If the taxpayer does not include the combat pay for EIC calculations, the EIC would only be $1,810.
- If the taxpayer includes combat pay for EIC calculations, the EIC would increase by $1,651 to a total of $3,461.
- The potential refund for this taxpayer this year, combining the increased Additional Child Tax credit and the increase of EIC, would be $4,549.
Additional Savings under the new Working Families Tax Relief Act of 2004
Child Tax Credit
Allows for the extension of the Child Tax Credit, providing the maximum credit amount for each qualifying child to remain at $1,000. The Additional Child Tax Credit is refundable to the extent of a specified percentage of the taxpayer's earned income in excess of $10,750 (from $10,000). The new Act accelerates the increase of the applicable percentage to 15% from the scheduled 10% in 2004.
Deduction For Educator Expense
The deduction for educator expenses will remain in place for 2004 and 2005, allowing an eligible educator to take up to $250 of qualified classroom expenses as an above the line deduction on their return. Expenses in excess of the $250 limit are deductible as miscellaneous itemized deductions subject to the 2% AGI limit.
Alternative Minimum Tax
Certain nonrefundable personal credits can offset both the regular tax and the alternative minimum tax (AMT) for the tax year in which they are taken. This provision will continue to help taxpayers avoid being subject to AMT. As extended by the WFTRA 2004, the following non- refundable personal credits that offset regular tax can continue to offset the AMT for 2004 and 2005: Credit for Child and Dependent Care Expenses, Credit for the Elderly and Disabled, Education Credits and Mortgage Interest Credit.
These and several other tax law changes have been placed in affect through the WFTRA 2004, allowing families to continue to reap these provisions each year. The tax professionals at Jackson Hewitt Tax Service are preparing to help taxpayers this coming tax season obtain or keep in their pockets the financial rewards these extensions provide.
Jackson Hewitt Tax Service Inc. (NYSE: JTX) is the second largest tax preparation service company in the United States, with over 4,900 franchised and company-owned offices in 49 states and the District of Columbia. Specializing in electronic filing (IRS e-file), the Company provides full service, individual federal and state income tax preparation and facilitates related financial products. Most Jackson Hewitt offices are independently owned and operated. Jackson Hewitt is based in Parsippany, New Jersey. More information about the Company may be obtained by visiting the Company's Web site at
http://www.jacksonhewitt.com.
Source
Jackson Hewitt Tax Service Inc.
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Jackson Hewitt Tax Service Inc.
973-496-2702