VOLUME 07 – SUMMER 2014

Reform to Child Tax Credits Approved by House, Confirms Sigma Tax Pro

New legislation approved by the House will tighten up Child Tax Credits to reduce misuse and fraud

The Child Tax Credit Improvement Act, known as H.R. 4936, would adjust the amount of the refundable tax credit, currently set at $1,000, for inflation. Sam Johnson, R-Texas, put forward the bill with a view to reduce commonplace fraud associated with the Child Tax Credits and also protect taxpayers. The act would require anyone claiming the credit to provide their social security numbers to be able to benefit from the tax credit. This requirement is already mandatory for the Earned Income Tax Credit and was used as a fraud prevention measure in the 1996 Welfare Reform law. It is also hoped that adjusting the credit for inflation will provide an extra benefit for couples who file joint returns and also eliminate the marriage penalty in the current version of the Child Tax Credit.

A report by the Treasury Inspector General for Tax Administration highlights the potential for fraud that exists with Child Tax Credit. The report pointed out that the number of individuals filing for the Additional Child Tax Credit without a social security number increased exponentially from 62,000 filers in 2000 to 2.3 million filers in 2010. While the need to reduce fraud is clear, the bill may also make life more difficult for some families as the expanded refundable portion of the Child Tax Credit, which expires in 2017, is not addressed in the bill. This typically affects the lowest income families and would potentially increase the number of families living below the poverty line.

NEWS AND TIPS

Sigma Tax Pro Confirms Student and Family Tax Simplification Act Is Passed by House

The house recently passed legislation that will consolidate the four different tax incentives for higher education into one single tax credit.

Professional tax preparers have often struggled with the complex nature of higher education tax incentives. The existing four tax incentives consist of the Hope Credit, the American Opportunity Tax Credit, the Lifetime Learning Credit, and the tuition deduction. The new Student and Family Tax Simplification Act would create an expanded American Opportunity Tax Credit. The simplified version would provide for a 100 percent tax credit for the first $2,000 of eligible higher education expenses and a 25 percent tax credit for the next $2,000 of such expenses (for a maximum credit of $2,500). An important piece of the new tax credit is that the first $1,500 would be refundable so taxpayers can receive the credit even if they have not paid any taxes.

Taxpayers would be able use the credit for tuition, other fees as well as books and other necessary educational materials. The idea behind the credit is that it would help lower income families to cope with the rising cost of higher education. It can be used for up to four years of higher education at approved universities and community colleges, as well as trade schools. The American Association of Community Colleges, the Association of Community College Trustees, the National Association of College Stores, and the United States Student Association support the legislation. But such support is not unanimous within the higher education sector. The College and University Professional Association for Human Resources, the Council for Christian Colleges and Universities, the Council of Graduate Schools, the Hispanic Association of Colleges and Universities, the National Association of Independent Colleges and Universities, and many others have voiced opposition to the bill.

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