Tax Benefits for Having Dependents
Kids can be overwhelming when they are cooped up in the house during summer break, but they are also blessed tax-savers when you file your taxes. There are some tax benefits you can take advantage of to maximize your tax refund if you have kids and other dependents.
Child Tax Credit:
You may be eligible for a tax credit, which is even better than a tax deduction since it reduces your taxes dollar-for-dollar. The Child Tax Credit is increased to a $2,000 credit under tax law and is available if you have a dependent child under the age of 17. The income threshold at which you can claim the Child Tax Credit is raised to $400,000 for couples who are married filing jointly and $200,000 if you are single.
If your dependent child is over 17 or you support a relative, you may still be able to claim the new Other Dependent Credit of $500.
Child and Dependent Care Credit:
Childcare is expensive, but Uncle Sam can help you out with the cost. If you are working or actively seeking work, and you pay childcare for your dependent who is under age 13 (no age limit if disabled), you can claim the Child and Dependent Care Credit.
This credit is a dollar-for-dollar reduction of your taxes, based on your childcare expenses, up to 35% of $3,000 ($1,050) for one child or $6,000 ($2,100) for two or more children. The credit ranges from 20% to 35% of your child-care expenses, depending on your income. Nursery school, private kindergarten, after-school programs, and daycare are all qualifying expenses.
Earned Income Tax Credit (EITC):
There’s a special tax credit available if your wages or self-employment income are below a certain income level. The amount of credit you receive is based on your income, filing status, and how many qualifying kids you have.
The refundable tax credit you can receive ranges from a maximum of $6,557 for three or more children down to $529 with no children. Unlike other tax credits, the Earned Income Tax Credit is refundable, so if the credit is greater than the tax you owe, you can still receive the difference as a tax refund.
So next time the kids are driving you crazy this summer, remember these tax savings and give them a big hug instead.
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