Newspaper article THE JOURNAL RECORD

College Savings Methods / Couples Gain Special Tax Break for Spouses Heading off to School

Newspaper article THE JOURNAL RECORD

College Savings Methods / Couples Gain Special Tax Break for Spouses Heading off to School

Article excerpt

More adults are heading back for additional schooling - and therein lie tax breaks you must not ignore. What if you have children, you are working and your spouse is going to school? Then you have a shot at this tax saver:

It's the child care credit. A couple with one spouse employed and the other a full-time student is entitled to the same child care credit as a couple with both spouses working.

It makes no difference whether the schooling has any connection with a past or future job. It could be the study of English literature, and the child care expenses would still be eligible for the credit.

Result: You can claim a tax credit - a dollar-for-dollar reduction in your tax bill - equal to 20 percent of your child-care expenses. (Couples with incomes of $28,000 or less can claim a bigger credit. The credit increases 1 percent for every $2,000 drop in income until it reaches 30 percent.)

Maximum credit: $480 for one child and $960 for two or more children (up to $720 and ,440, respectively, for lower-income couples).

But the amount of child-care expenses on which the credit is based cannot exceed the lesser of your earned income or your spouse's. If your spouse is a full-time student, he or she is considered to have an earned income of $200 a month if one child or dependent is cared for, or $400 a month if there are two or more children or dependents.

Key point: In order to be a full-time student, your spouse has to be enrolled in school at least five months during the year. And what may be a problem if your spouse has started school this fall.

Example: John Allen has a full-time job and Mrs. Allen has been very active in community affairs. The Allens have a housekeeper, Emma. Mrs. Allen started graduate school in September and Emma is spending about half her working time taking care of the Allen's two children while Mrs. Allen is in school. Emma is paid $700 a month.

Question: Will the Allens be in line for a child care credit on Emma's salary in 1987?

Answer: Not as things stand now. Reason: Mrs. …

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