Having children is wonderful but they can be overwhelming during summer breaks or when they’re cooped up in the house when spring comes up. However, they are also a great help if you want to save some money when filing your tax return and paying for your taxes. The secret is understanding what new tax credits are there available for you to claim and how you can take full advantage of them.
Since having a baby is pretty expensive, it’s always best to take all the help Uncle Sam is willing to give you. There are actually three bag tax breaks that eligible parents can as well as one that the recently passed Tax Cuts and Jobs Act eliminated.
But even though the new tax reform law starting with your 2018 taxes removed the dependency exemption of $4,050, the remaining tax benefits you qualify for can maximize your tax refund if you have kids and other dependents.
Child Tax Credit. You should find out if you are qualified to claim a child tax credit as it better than a tax deduction. It can reduce your taxes dollar-for-dollar. The Child Tax Credit is now $2,000 credit for 2018 under the newly passed law. It was only $1,000 for 2017 so you can really see a big difference. It is available for those who have a dependent child under the age of 17. In order for you to claim the Child Tax Credit, you must meet the income threshold of $400,000, up from $110,000 for married filing jointly under the new tax reform law.
Child and Dependent Care Credit. Uncle Sam offers to help those who find childcare costs a challenge financially. Individuals who are working or are actively seeking work and you pay childcare for your depending who is under age 13 you are allowed to claim the Child and Dependent Care Credit. For disabled dependents, there is no age limit.
You will be able to reduce your taxes dollar-for-dollar in this type of credit depending on your child care expenses, up to 35% of $3,000 ($1,050) for one child or $6,000 ($2,100) for two or more children. Depending on your income, you will be able to claim a credit that ranges from 20% to 35% of your child-care expenses. Other expenses such as nursery school, private kindergarten, after-school programs, and daycare are all considered qualifying expenses.
Earned Income Tax Credit (EITC). Do your wages and self-employment income fall below a certain level? Then this special tax credit is available for you. How much you can earn and qualify for is based on how many dependent children you have.
Couples who have three or more children can earn up to $49,194 ($54,884 if you are married and filing jointly) and qualify. The range drops to up to $45,802 ($51,492 married filing jointly) if you only have two children. Having one child, on the other hand, means your earnings and adjusted gross income must be less than $40,320 ($46,010 married filing jointly).
The maximum refundable tax credit you can receive is $6,431 if you have three children and if you have no children, it's $519. The Earned Income Tax Credit is different from other credits in the sense that it is refundable. The IRS will still send you the difference is the credit is greater than the tax you need pay.
If you want to find out the exact amount of the child tax credit or additional child tax credit you are eligible to claim, you may fill up the child tax credit worksheet found in IRS Publication 972, Child Tax Credit. The IRS provides this free to download on their website at www.irs.gov. Once you download it and starts to complete it, enter the amount of your child tax credit on your tax return (line 51 of Form 1040 or line 33 of Form 1040A). The line 6C of Form 1040 or Form 1040A must be completed and you must provide your Social Security number or Adoption Taxpayer Identification Number for each child. Lastly, check the box in column 4 of line 6C for each of your kids whom you are claiming the child tax credit.
Now that you know this, make sure you hug your kids every day for being a blessing and helping you enjoy these tax savings even though they drive you crazy sometimes.
