Child Tax Credit
USA Today recently reported that a middle-income family with a child born in 2013 can expect to spend $245,340 to raise their child to age 18. Jaws of penny-pinching parents across the nation are dropping at the enormous figure. We here at GQ Law have a bit of good news for you! Follow along as we shine a little money saving light on the topic of child-rearing, showing you what sweet tax breaks come along with your new bundle of joy.
Gary’s son with his family of 5.
Child Tax Exemption
Tax payers receive an exemption of $3,900 on their yearly tax return for any child under 18 including any baby born by midnight December 31st of that tax year. Since this is an exemption, this only impacts taxes owed and cannot be added to your refund.
Child Tax Credit
Taxpayers may be eligible for the Child Tax Credit, up to $1000 per dependent child 17 and under. This is a credit and it can be applied to other tax liabilities or added to your refund at the end of the year. To qualify for this credit your modified adjusted gross income has to be less than $75,000 for a single, head of household, $110,000 for married couples filing jointly, or $55,000 for married filing separately.
Credit for Child and Dependent Care Expenses
Depending on income and other factors, you may be eligible for a Credit for Child and Dependent Care expenses of up to 35% of qualified expenses. This credit can be up to $3000 for one child and up to $6000 for families with multiple children. This credit is nonrefundable so if it drops your tax liability below $0, you will not get the difference back in the form of a tax refund.
Earned Income Tax Credit
For taxpayers with an income less than $46,227 ($51,567 for married filing jointly), the Earned Income Tax Credit may come into play. This credit can be up to $6,044 and is refundable.
Other Tax Saving Programs Available Through Most Employers
Employers often offer Flexible Spending Accounts (FSA) or a Dependent Care Benefit Program (DCBP). Both programs allow you to set aside pre-tax money to be used for qualified expenses. An employee can put up to $2500 of pre-tax income in an FSA to be used for qualified medical expenses in that calendar year. Since the money essentially “expires” at the end of the year, this is a good idea if you know there is an upcoming medical expense like a pregnancy/child birth, a planned surgery, treatment or other medical procedure. A DCBP works similarly, but it allows you to set aside up to $5000 per year pre tax (saving you up to $382.50 in payroll taxes plus additional savings in income taxes). This money can then be used for qualified dependent care expenses and like FSA funds, expires at the year’s end.
While the decision to have children is purely your own, I have found that the joy of raising children, and now watching my children raise their children, far outweighs any cost. To quote the MasterCard commercial cliche, its “priceless.” Knowing how to take advantage of simple things like the Child Tax Credit, FSAs and Child Tax Exemption helps put a little more money back in your pocket and take a little weight off your shoulders. If you need help understanding these tax credits and exemptions, please don’t hesitate to contact my office.
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This information is not a substitute for the legal advice of a professional. Tax laws change frequently. Please contact a licensed tax professional for help with your particular tax situation. Gary Quackenbush and his tax team are available to help you with any questions or concerns. Please call our office at 858-549-8600 or request and appointment through the CONTACT US tab.