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Money Management (Distributed by the New Jersey Society of Certified Public Accountants)

**SPECIAL SERIES ON THE NEW TAX LAWS**

Get The Facts On The New Child Tax Credit


Remember all those times you gave your children advances on their allowances? Now, it's your turn to get an advance payment - not from your children per se but from the U.S. government.
This summer, 25 million eligible taxpayers who claimed the child tax credit on their 2002 tax return can expect a special check from Uncle Sam. According to the New Jersey Society of Certified Public Accountants (NJSCPA), the Jobs and Growth Tax Relief Reconciliation Act of 2003, signed into law on May 28, 2003, increased the child credit from $600 to $1,000 per eligible child, beginning in 2003. The checks (up to $400 per qualifying child) are an advance payment of the 2003 increase in the Child Tax Credit.

Payments Are Automatic
There are no forms to fill out or calls to make. The IRS will calculate the advance payment from information on your 2002 tax return and automatically send it to eligible taxpayers. Generally, you are eligible if you claimed the child tax credit on your 2002 tax return, filed Form 1040 or 1040A, or filed electronically, and have a qualifying child who was born after 1986.

Checks Will Be Mailed Automatically
The IRS will mail the majority of the tax credit payments in three scheduled mailings: July 25, August 1, and August 8. The mailings will be scheduled according to the last two digits of the Social Security number that appears first on the taxpayer's 2002 tax form. Taxpayers whose last two digits are the lowest will receive their checks first. You will not have the option of directly depositing the advance payment to your bank.
In advance of the checks, taxpayers will receive notices advising them of their eligibility. CPAs say that you should retain the IRS notice since you will be required to take the advance into account when determining the child tax credit on your 2003 tax return.
Both the notice and the check will be mailed to the address listed on the taxpayer's 2002 tax return. If you have moved since filing your 2002 return, you should notify the U.S. Postal Service of your new address so that the notice and check may be forwarded appropriately. Taxpayers who qualify for the advance payment but do not receive a check may claim the full child tax credit of up to $1,000 per qualifying child when they file their 2003 tax return.

Late Filers To Receive Delayed Checks
If you filed for an extension and have not yet completed your return this year, you should follow the 2002 tax law in computing the child tax credit. Do not make any change to your return based on the expectation of an advance payment check. According to the IRS, late filers can expect to receive their advance payment checks four to six weeks after filing.

Take Note Of Special Circumstances
Taxpayers with a child who was born in 2003 will not receive an advance payment for that child since they would not have claimed a child tax credit on their 2002 tax return. However, they may claim a credit for up to $1,000 when filing their 2003 tax return.
Taxpayers who owe the government for federal or state income tax for prior tax years can expect that their advance payments will be applied to any outstanding debt. If the advance payment amount is more than the balance due, the taxpayer will get a check for the difference.

No Repayment Required
The new law bases the advance payment on the child tax credits claimed on the 2002 tax return. When you compute the child tax credit on your 2003 return, you will subtract the advance payment from the amount for which you qualify. If it turns out that the advance payment is more than you were entitled to, it is possible you will not be required to repay the difference.

Consult With A CPA
A CPA can help you understand the child tax credit, as well as other provisions in the Jobs and Growth Tax Relief Reconciliation Act of 2003. If you don't have a CPA, you can easily locate one online using the NJSCPA Find-A-CPA service. Just go to www.findacpa.org and in a few clicks, you can locate a highly qualified professional who is right for you.

If you would like to receive more information on various financial matters, subscribe to E-CPA the NJSCPA's free, monthly email newsletter. To subscribe, visit http:/www.njscpa.org/finances or email a subscription request to e-cpa@njscpa.org.

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Note to press: On June 5, the Senate passed a bill to expand the child tax credit to millions of low-income families who would get no benefit under the new laws impacting the child tax credit for 2003 and 2004. The bill would allow low-income households to claim a child credit for 15 percent of their earned income over $10,500, to a maximum of $1,000. Currently, they can claim a credit for 10 percent of their income over that threshold. Since those families pay little or no income tax, the credit would come in the form of a check. It also increased the phase-out thresholds for this credit from $110,000 to $115,000 in 2008 and 2009 and to $150,000 in 2010. After 2010, the credit would revert back to $600. The bill's fate in the House is questionable.

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Money Management is a weekly column on personal finance distributed by the NJSCPA.

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