What is New In the Tax Area

Table of Contents: Important Year 2003 Changes

• New Definition of Eligible Foster Child
• Standard Mileage Rage
• Self-employment Tax
• Limit on Personal Credits
• Reduced Failure-To-Pay Penalty
• Tax Benefits for Armed Forces Members
• Child Care Credit/Other Credits:
• More Tax Updates for Year 2003

New Definition of Eligible Foster Child

For tax years after 1999, a child is your eligible foster child for the earned income credit if all the following apply.

1. The child is your brother, sister, stepbrother, or stepsister ( or a descendant of your brother, sister, stepbrother, or stepsister) or has been placed with you by an authorized placement agency.
2. You card for that child as you would your own child.
3. The child lived with you for the whole year, except for temporary absences.

Standard Mileage Rage

If you use your car in your business, you can figure your deduction for business use based on either your actual cost or the optional standard mileage rate for 2000, the optional standard mileage rate for the cost of operating your ear, including a van, pickup, or panel truck, is increased to 32 1/2 cents a mile for all businessed miles.

Self-employment Tax

The self-employment tax rate on net earnings remains the same for calendar year 2000. This rate, 15.3%, is a total of 12.4% for social security(old-age survivors, and disability insurance) and 2.9% for Medicare (hospital insurance).

Limit on Personal Credits

For 2000 and 2001, your nonrefundable personal credits for the year can offset both your regular tax ( after reduction by the foreign tax credit) and your alternative minimum tax for that year.

The personal credits that can offset those, but cannot be refunded if they are more than those taxes, are the following.

• Adoption credit.
• Child tax credit.
• Credit for child and dependent care expenses.
• Education credits (Hope and lifetime learning credits).
• Mortgage interest credits.
• District of Columbia first-time homebuyer credit.

Reduced Failure-To-Pay Penalty

If you do not pay your tax when it is due, you may be subject to a failure-to-pay penalty of .5% ( .005) of your unpaid taxes for each month the tax is not paid. If you file your return on time, this penalty will be reduced to .25% (.0025) for any month beginning after 1999 in which you have an installment agreement in effect with the IRS.

Tax Benefits for Armed Forces Members
Several tax law provisions benefit active members of the U.S. Armed Forces, especially those serving in combat areas. Those who qualify get some or all of their military pay tax free, and they have extra time to file returns.

Child Care Credit/Other Credits:
If you paid someone to care for your dependent under age 13 or your disabled dependent or spouse so that you could work or look for work, you may be able to claim the credit for child and dependent care expenses. For specific information on how to qualify for this credit refer to Tax Topic 602, Child and Dependent Care Credit, or Publication 503 (PDF), Child and Dependent Care Expenses.


More Tax Updates for Year 2003
For more 2003 updates please select the following IRS Link

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