Tax Law Changes for Your 2006 Return

There are a host of pertinent tax law changes for 2006. They can be found in Publication 553 beginning on page 7. Wages subject to Social Security tax have increased to $94,200. All wages are subject to Medicare taxes in 2006. If your modified adjust gross income (MAGI) is between $94,700 to $124,700 and you are filing married filing jointly or qualifying widow your interest exclusion for education savings bond is phased out. Interest deduction cannot be taken if your MAGI is more than $124,700. Other filing statuses that have a MAGI of between $63,100 and $78,100 have their interest exclusion for education savings bond phased out. No one making a MAGI of $78,100 may claim an interest exclusion. There has been an increase in limit for long term care and accelerated death benefits wherein the excludable amount is calculated by subtracting the reimbursement received from insurance or other means from which ever is the larger of the following 1) the total cost of qualified long term care for the reported period or 2) the dollar amount for the period figured at $250 per diem.

Other larger changes have been in the new definition of what constitutes a qualifying child. This has been divided into the relationship test, the residency test and the age test. A qualifying child must be your child, step-child, eligible foster child, brother, step-brother, sister, step-sister or a descendent of one of these relatives. The residency test states that any of these relations must live with you for at least a half year. The age test varies in accordance with the ruling tax benefit. If it is dependency then they must be under 19 years of age, 24 years of age if they attend school. The child tax credit requires that they be under 17 years of age. If you claim credit for child and dependent care expenses they must be under 13 years of age. However, a child can be of any age if they cannot care for themselves and have lived with you for more than half a year. Last the support test states that any child which has not contributed to more than half of their support during the year can be claimed as a qualifying child.
The amount of investment income of a child under 14 years of age can have without paying tax has risen from $1,400 to $1,700 for any tax year. Health Savings Accounts deductions have risen to $2,700 for 2006 as well as many more important deductions outlined in Publication 553.