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New California tax credits

While there have not been many major changes in the Federal Tax Law this year, three new credits may substantially reduce your California tax liability. Unlike a tax deduction, a tax credit is a dollar for dollar reduction of your tax bill. Therefore before completing your returns, you should make sure your tax preparer has considered the following credits:

Long-Term Caregiver Credit

This $500 credit is designed to reduce the tax burden of individuals who provide long-term care services for themselves or their dependents. The credit is a flat $500 for each individual for whom you provide services. To qualify, the person to whom the services are provided must be unable to perform at least three activities of daily living without substantial assistance. In addition, this inability must exist for at least 180 consecutive days, and a physician must certify the condition.

Daily living activities include eating, toileting, transferring, bathing, dressing and continence. Unlike most other credits, this credit does not require any expenditure of funds whatsoever; rather, the credit is based on providing services. Another highly unusual feature of this credit, is that a qualifying individual may actually claim the credit for providing the services to themselves. On the downside, the credit is not available if the caregiver’s Adjusted Gross Income is equal to or exceeds $100,000 and may only be used to offset your tax liability; any excess is not refundable.

Child and Dependent Care Credit

Although the Internal Revenue Service has allowed a Child and Dependent Care Credit for years, California phased its credit out years ago. It has now returned, and unlike the Long-Term Caregiver Credit described above, any excess credit can be refunded. The computation of the credit is remarkably simple, as the California credit is simply a percentage of the federal credit. If your California Adjusted Gross Income is $40,000 or less, the percentage is 63% of the federal credit. The percentages gradually decrease as your adjusted gross income increases. Like the Long-Term Caregiver credit, the credit is not available once your income equals or exceeds $100,000.

Teacher’s Tax Credit

This credit is available for teachers who teach in public or private school in grades K-12. The school must be located in California, and the teacher must have an Internship, Preliminary or Clear Credential. In addition, the teacher must have at least four full school years of service as a teacher. Services provided as a superintendent, principal or counselor do not qualify for the credit. However, services provided as an athletic coach or music teacher do qualify for the credit.

The credit starts at $250 for teachers with at least 4 years of service, and increases to a whopping $1,500 for teachers with 20 or more years of service. Unfortunately, rather than impose a simple income limitation as they had done for the other two credits, the Legislature chose a complex computation that insures most teachers will be seeing their tax accountants come April.