does not constitute income and shall not be treated as resources for purposes of determining eligibility or the amount or nature of benefits or assistance under any Federal program or any State or local program financed with Federal funds. Alternative minimum tax The conference agreement follows H.R. 6 and the Senate amendment. Effective date.-The provision generally is effective for taxable years beginning after December 31, 2000. The provision relating to allowing the child tax credit against alternative minimum tax is effective for taxable years beginning after December 31, 2001. B. SENSE OF THE SENATE REGARDING CHILD CREDIT EXPANSION (SEC. 202 OF THE SENATE AMENDMENT) PRESENT LAW Under present law, an individual may claim a $500 tax credit for each qualifying child under the age of 17. In general, a qualifying child is an individual for whom the taxpayer can claim a dependency exemption and who is the taxpayer's son or daughter (or descendent of either), stepson or stepdaughter, or eligible foster child. HOUSE BILL No provision. SENATE AMENDMENT The Senate amendment provides a Sense of the Senate resolution that the expansion of the child credit included in the Senate amendment be retained in the conference agreement. CONFERENCE AGREEMENT The conference agreement does not include the Senate amendment. C. EXTENSION AND EXPANSION OF ADOPTION TAX BENEFITS (SEC. 2 OF H.R. 622, SEC. 203 OF THE SENATE AMENDMENT, AND SECS. 23 AND 137 OF THE CODE) Tax credit In general PRESENT LAW A tax credit is allowed for qualified adoption expenses paid or incurred by a taxpayer. The maximum credit is $5,000 per eligible child ($6,000 for a special needs child). An eligible child is an individual (1) who has not attained age 18 or (2) is physically or mentally incapable of caring for himself or herself. A special needs child is an eligible child who is a citizen or resident of the United States who a State has determined: (1) cannot or should not be returned to the home of the birth parents; and (2) has a specific factor or condition (such as the child's ethnic background, age, or member ship in a minority or sibling group, or the presence of factors such as medical conditions, or physical, mental, or emotional handicaps) because of which the child cannot be placed with adoptive parents without adoption assistance. Qualified adoption expenses are reasonable and necessary adoption fees, court costs, attorneys fees, and other expenses that are: (1) directly related to, and the principal purpose of which is for, the legal adoption of an eligible child by the taxpayer; (2) not incurred in violation of State or Federal law, or in carrying out any surrogate parenting arrangement; (3) not for the adoption of the child of the taxpayer's spouse; and (4) not reimbursed (e.g., by an employer). Qualified adoption expenses may be incurred in one or more taxable years, but the credit may not exceed $5,000 per adoption ($6,000 for a special needs child). The adoption credit is phased out ratably for taxpayers with modified adjusted gross income between $75,000 and $115,000. Modified adjusted gross income is the sum of the taxpayer's adjusted gross income plus amounts excluded from income under Code sections 911, 931, and 933 (relating to the exclusion of income of U.S. citizens or residents living abroad; residents of Guam, American Samoa, and the Northern Mariana Islands; and residents of Puerto Rico, respectively). The adoption credit for special needs children is permanent. The adoption credit with respect to other children does not apply to expenses paid or incurred after December 31, 2001. Alternative minimum tax Through 2001, the adoption credit generally reduces the individual's regular income tax and alternative minimum tax. For taxable years beginning after December 31, 2001, the otherwise allowable adoption credit is allowed only to the extent that the individual's regular income tax liability exceeds the individual's tentative minimum tax, determined without regard to the minimum tax foreign tax credit. Exclusion from income A maximum $5,000 exclusion from the gross income of an employee is allowed for qualified adoption expenses paid or reimbursed by an employer under an adoption assistance program. The maximum excludible amount is $6,000 for special needs adoptions. The exclusion is phased out ratably for taxpayers with modified adjusted gross income between $75,000 and $115,000. Modified adjusted gross income is the sum of the taxpayer's adjusted gross income plus amounts excluded from income under Code sections 911, 931, and 933 (relating to the exclusion of income of U.S. citizens or residents living abroad; residents of Guam, American Samoa, and the Northern Mariana Islands; and residents of Puerto Rico, respectively). For purposes of this exclusion, modified adjusted gross income also includes all employer payments and reimbursements for adoption expenses whether or not they are taxable to the employee. The exclusion does not apply for purposes of payroll taxes. Adoption expenses paid or reimbursed by the employer under an adoption assistance program are not eligible for the adoption credit. A taxpayer may be eligible for the adoption credit (with respect to qualified adoption expenses he or she incurs) and also for the exclusion (with respect to different qualified adoption expenses paid or reimbursed by his or her employer). The exclusion from income does not apply to amounts paid or expenses incurred after December 31, 2001. Tax credit HOUSE BILL No provision. However, H.R. 622, the "Hope for Children Act," as passed by the House, permanently extends the adoption credit for children other than special needs children. The maximum credit is increased to $10,000 per eligible child, including special needs children. The beginning point of the income phase-out range is increased to $150,000 of modified adjusted gross income. Therefore, the adoption credit is phased-out for taxpayers with modified adjusted gross income of $190,000 or more. Finally, the adoption credit is allowed against the alternative minimum tax permanently. Exclusion from income No provision. However, H.R. 622 permanently extends the exclusion from income for employer-provided adoption assistance. The maximum exclusion is increased to $10,000 per eligible child, including special needs children. The beginning point of the income phase-out range is increased to $150,000 of modified adjusted gross income. Therefore, the exclusion is not available to taxpayers with modified adjusted gross income of $190,000 or more. Effective date. Generally, the provision of H.R. 622 is effective for taxable years beginning after December 31, 2001. Qualified expenses paid or incurred in taxable years beginning on or before December 31, 2001, remain subject to the present-law dollar limits. Tax credit SENATE AMENDMENT Same as H.R. 622, with one modification. The Senate amendment provides a $10,000 credit in the year a special needs adoption is finalized regardless of whether the taxpayer has qualified adoption expenses. No credit is allowed with respect to the adoption of a special needs child if the adoption is not finalized. Exclusion from income Same as H.R. 622, with one modification. The Senate amendment provides a $10,000 exclusion in the case of a special needs adoption regardless of whether the taxpayer has qualified adoption expenses. Effective date. The provision is effective for taxable years beginning after December 31, 2001. CONFERENCE AGREEMENT The conference agreement follows the Senate amendment with one modification. The provisions of the Senate amendment that extend the tax credit and exclusion from income for special needs adoptions regardless of whether the taxpayer has qualified adop tion expenses are effective for taxable years beginning after December 31, 2002. D. EXPANSION OF DEPENDENT CARE TAX CREDIT (SEC. 205 OF THE SENATE AMENDMENT AND SEC. 21 OF THE CODE) Dependent care tax credit PRESENT LAW A taxpayer who maintains a household that includes one or more qualifying individuals may claim a nonrefundable credit against income tax liability for up to 30 percent of a limited amount of employment-related expenses. Eligible employment-related expenses are limited to $2,400 if there is one qualifying individual or $4,800 if there are two or more qualifying individuals. Thus, the maximum credit is $720 if there is one qualifying individual and $1,440 if there are two or more qualifying individuals. The applicable dollar limit ($2,400/$4,800) of otherwise eligible employment-related expenses is reduced by any amount excluded from income under an employer-provided dependent care assistance program. For example, a taxpayer with one qualifying individual who has $2,400 of otherwise eligible employment-related expenses but who excludes $1,000 of dependent care assistance must reduce the dollar limit of eligible employment-related expenses for the dependent care tax credit by the amount of the exclusion to $1,400 ($2,400-$1,000 = $1,400). A qualifying individual is (1) a dependent of the taxpayer under the age of 13 for whom the taxpayer is eligible to claim a dependency exemption, (2) a dependent of the taxpayer who is physically or mentally incapable of caring for himself or herself, or (3) the spouse of the taxpayer; if the spouse is physically or mentally incapable of caring for himself or herself. The 30 percent credit rate is reduced, but not below 20 percent, by 1 percentage point for each $2,000 (or fraction thereof) of adjusted gross income above $10,000. The credit is not available to married taxpayers unless they file a joint return. Exclusion for employer-provided dependent care Amounts paid or incurred by an employer for dependent care assistance provided to an employee generally are excluded from the employee's gross income and wages if the assistance is furnished under a program meeting certain requirements. These requirements include that the program be described in writing, satisfy certain nondiscrimination rules, and provide for notification to all eligible employees. Dependent care assistance expenses eligible for the exclusion are defined the same as employment-related expenses with respect to a qualifying individual under the dependent care tax credit. The dependent care exclusion is limited to $5,000 per year, except that a married taxpayer filing a separate return may exclude only $2,500. Dependent care expenses excluded from income are not eligible for the dependent care tax credit (sec. 21(c)). HOUSE BILL No provision. SENATE AMENDMENT The Senate amendment increases the maximum amount of eligible employment-related expenses from $2,400 to $3,000, if there is one qualifying individual (from $4,800 to $6,000, if there are two or more qualifying individuals). The Senate amendment also increases the maximum credit from 30 percent to 40 percent. Thus, the maximum credit is $1,200, if there is one qualifying individual and $2,400, if there are two or more qualifying individuals. Finally, the Senate amendment modifies the phase-down of the credit. Under the Senate amendment, the 40-percent credit rate is reduced, but not below 20 percent, by 1 percentage point for each $2,000 (or fraction thereof) of adjusted gross income above $20,000. Therefore, the credit percentage is reduced to 20 percent for taxpayers with adjusted gross income over $58,000. Effective date. The provision is effective for taxable years beginning after December 31, 2001. CONFERENCE AGREEMENT The conference agreement follows the Senate amendment, with modifications. Under the conference agreement, the maximum credit is 35 percent. Further, the conference agreement provides that the phase-down of the credit applies with respect to adjusted gross income above $15,000. Therefore, the credit percentage is reduced to 20 percent for taxpayers with adjusted gross income over $43,000. Effective date.-The conference agreement provision is effective for taxable years beginning after December 31, 2002. E. TAX CREDIT FOR EMPLOYER-PROVIDED CHILD CARE FACILITIES (SECS. 206 AND 207 OF THE SENATE AMENDMENT AND NEW SEC. 45D OF THE CODE) PRESENT LAW Present law does not provide a tax credit to employers for supporting child care or child care resource and referral services. An employer, however, may be able to deduct such expenses as ordinary and necessary business expenses. Alternatively, the employer may be required to capitalize the expenses and claim depreciation deductions over time. No provision. HOUSE BILL SENATE AMENDMENT Under the Senate amendment, taxpayers receive a tax credit equal to 25 percent of qualified expenses for employee child care and 10 percent of qualified expenses for child care resource and referral services. The maximum total credit that may be claimed by a taxpayer cannot exceed $150,000 per taxable year. |