CHILD AND DEPENDENT CARE CREDIT - COMBAT PAY
Earned income is calculated two different ways on Form 2441, Child and Dependent Care Expenses. The earned income calculation for Form 2441, Page 1, includes certain nontaxable earned income, including meals and lodging provided for the convenience of your employer and nontaxable combat pay. This calculation may affect your Child and Dependent Care Credit. To calculate the earned income amount for Form 2441, Page 2, you can elect whether or not to include combat pay as earned income. This calculation may affect how much of your dependent care benefit is excludable. You should calculate your return both ways -- including and not including combat pay as earned income on Form 2441, Page 2 -- to determine which gives you the more advantageous result.

CHILD AND DEPENDENT CARE CREDIT - AMENDING RETURNS
The 2002 and 2003 IRS instructions for Form 2441, Child and Dependent Care Expenses, contained an error that may have incorrectly reduced your Child and Dependent Care Credit for those years. This error was corrected in 2004. You may be entitled to an additional refund if you filed Form 2441 for tax years 2002 or 2003. Contact a local Jackson Hewitt office to discuss your situation and determine whether amending your return would result in additional tax savings.

CHILD TAX CREDIT - QUALIFYING CHILD
You may get a credit of up to $1,000 for a qualifying child under age 17 at the end of the year. A qualifying child is your dependent who is a son, daughter, stepchild, adopted child, grandchild or eligible foster child. This credit may be refundable depending on your earned income.

CHILD TAX CREDIT - REFUNDABLE CREDIT
You may get a credit of up to $1,000 for a qualifying child under age 17. If you receive less than the full amount of the Child Tax Credit because it is limited to your available tax liability, you may be entitled to an additional credit in excess of your tax liability. This may be a refundable credit depending on your earned income.

CHILD TAX CREDIT - COMBAT PAY
Although combat pay is not included in income for purposes of calculating your federal income tax, combat pay is included as earned income when calculating the refundable portion of the Child Tax Credit. This could mean a higher credit for those with low taxable income because the amount of additional credit depends on earned income.