ON TAX returns, this is the Year of the Child. If your children are young or in college, big write-offs are probably coming your way.
Here's what you might be eligible for:
The new tax credit for children. You can subtract $400 from your taxes for each dependent child under 17 if you meet an income test. The full credit is available to married couples, filing jointly, with adjusted gross incomes of $110,000 or less, and singles with $75,000 or less.
The size of your tax credit shrinks by $50 for every additional $1,000 (or part thereof) you have in income. Exactly where it phases out depends on how many children you have.
This tax credit covers all your dependent children -- natural, step, foster, adopted, even grandchildren.
Two new tax credits for students in an accredited college or trade school.
The Hope tax credit applies to students in their first or second year of school. You're allowed as many credits as you have family members who qualify. They have to attend at least half-time, and be in a program that leads to a certificate or degree.
The Hope credit allows you to slice up to $1,500 off your taxes to offset the cost of tuition and fees (but not room, board or books).
It covers you and your spouse, if you're in school, as well as your dependent children.
The second one, the Lifetime Learning credit, is usable in any year, by any student, of any age. It's available even for minimal study -- say, an adult-education course or a single course to improve your job skills.
This credit is worth up to $1,000 (20 percent of the first $5,000 paid in tuition and fees), for expenses starting July 1, 1998.
You can take only one Lifetime Learning credit on your tax return. If there are two eligible students in your family, you still get only $1,000.
You can't use both the Hope and the Lifetime credit for a single student. But you can claim a Hope credit for one or more children, plus a Lifetime Learning credit for yet another child, on the same tax return.
Who qualifies for these education tax breaks?
Married couples filing jointly get the full credit on adjusted gross incomes up to $80,000, phasing out at $100,000.
Singles get the full credit with incomes up to $40,000, phasing out at $50,000.
Claim these credits on Form 8863. The IRS will cross-check your claim with data it gets from the schools.
One interesting problem for the divorced: If you pay your child's tuition, but the child is the dependent of the other spouse, the other spouse gets the tax credit, you don't.
(Income-tax guides imply that neither of you gets the credit. The current interpretation comes from proposed IRS regulations, expected to be adopted, says IRS spokesman Don Roberts.)
A new tax deduction of up to $1,000 in interest paid on student loans, or parent loans for a dependent student.
You get this write-off during the first 60 months of your repayment program. If you started making payments in January 1996, for example, you can take a deduction for 1998, 1999 and 2000.
The interest deduction is granted even to taxpayers who don't itemize on their tax returns. But be sure you pick the right return. You are required to use Form 1040 or 1040A, not Form 1040EZ.
There are income limits. Singles get the full deduction with incomes up to $40,000, phasing out at $55,000. For married couples filing jointly, it's $60,000, phasing out at $75,000.
You can't take the deduction on a loan from a family member, or from a revolving credit account (such as a home-equity loan), unless that account is dedicated only to student loans.
A larger standard deduction for dependent children with earnings or investment income of their own. This year, it's the greater of these two possibilities: (1) $700; or (2) the child's earned income plus another $250 (as long as the total doesn't exceed $4,250).
If you get a big tax refund this year, try to save the money. Put it into a retirement plan or a mutual fund account.
Then file a new W-4 form with your employer, reducing the amount of tax withheld from your paycheck.
That will lower next year's refund and raise your current take-home pay. Savvy savers will direct that newfound money into investments, too.
Pub Date: 3/08/99