!!! Raoul's Junior Tax Buddy News Flash!!! In October, Congress made an adjustment in the "Nanny Tax" law which will make it a little easier to get a tax credit for that illegal alien baby sitter/housekeeper. (Raoul thinks they really did it to increase the talent pool for the next administration's Attorney General nominees.) In the past, if an in-your-home child care provider earned more than $200 from you in a year, you would be required to pay social security tax on their earnings. This involved filing a quarterly form 942 Domestic Employee Return and sending the IRS 15.3% of the wages you paid.
Would it surprise you that many people did not comply with this law? Why not, you ask? Because, first of all, it was a real big pain in the butt! Second, since the child care credit is only 20% of $2,400 per child, for some, it wasn't even worth the bother and fuss. And third, many workers preferred to stay in the underground economy, including most of Raoul's relatives. Hey! Let's be realistico, look what being legal has done for you.
On the other hand, Congress loved this law because they would get this extra money and be able to spend it on more useless crap we don't need. But, take Raoul's word. There will not be one less congressional junket to an island paradise. They'll just go back to doing what they've always done, and get the money from the poor people.
The new law raises the earnings limit before you must pay social security tax on domestics to a reasonable $1,000 per year, each! This will allow a significant number of taxpayers to break one less law. Incidently, those teenage baby sitters...they are completely exempt from the law. Honest! God bless our elected representatives.
And, since we are on the subject of baby sitting/child care, etc., I want to bring your attention to an obscure yet important aspect of child and dependent care expenses which Raoul has noticed that a lot of people overlook. Basically, the tax credit for child and dependent care expenses is a reduction of your income tax based on a percentage (usually twenty percent) of the expenses you pay for child care when both spouses are employed. The amount of expenses the credit can be computed on is $200 per child per month, or a maximum of $400 if more than one dependent is being cared for. Therefore, $4,000 in a single year is the maximum amount on which the tax credit can be based. So, unfortunately, even if you are raising a soccer team, in most cases your credit will max out at approximately $480 for one child, and $960 for two or more.
Now, what I feel is very important for Raoul to bring to your attention is the fact that there are some instances when the credit applies even if both spouses are not working. One of those situations is when either spouse is a full-time student. A person is considered a full-time student if they are in school for any five months of the year, even if they hate every minute of it.
Now you know. If your non-working spouse decides to go back to school and, it matters not whether it's for astrophysics or interior decorating, your child care expenses could be eligible for the tax credit. If you want to find out more about this and bore yourself into a coma, shuffle right on down to your local IRS office and ask for a copy of form 2441 and Publication 503. And, please remember, under no circumstances, mention Raoul's name!
As promised, con mucho gusto, this month we are introducing "Raoul's Junior Tax Buddies," exclusively for RAP members! Beginning this month, RAP members can now communicate with Raoul and the Taxmen, and take advantage of our extensive know-how when it comes to your hard-earned dollars! If you have a question relating to taxes or financial matters, Raoul and the Taxmen are here for you. Fax your questions to Raoul and the Taxmen at (215) 884-7575. Be sure to introduce yourself and provide us with a professional description -- sort of like a "radio curriculum vitae" -- some background or situation underlying the reason for your particular question or comment, and, of course, your telephone number. One of Raoul's Taxmen, armed with a full bandolier and twenty years' experience in taxes and accounting, will get back to you personally. Maybe even Raoul! One condition, all questions must begin with "HEY RAOUL."
Raoul promises that all questions and replies will be held in strict confidence. However, if you have a singularly interesting question or topic, we may ask your permission to share it with your fellow RAP and industry compadres in a future issue, keeping you anonymous, of course. Cuidado! Warning! Raoul and the Taxmen are not interested in your domestic troubles, declining sexual potency, or transmission problems. Don't be a dork; keep those questions serious. I'm the comedian! So, until next month, when among other things we'll discuss Raoul's own traditional family recipe for Marinated Gefilte Fish Fajitas, try not to swallow the little worm in the bottom of the bottle. Hasta la vista!