There are many tax breaks to consider for taxpayers with children or other dependents. These include exemptions, earned income credit, child or dependent care credit, child tax credit, and medical expenses.
Nearly everyone can claim an exemption on their tax return. An exemption usually lowers your taxable income, which is great because that’ll in turn lower the tax you owe. If you are married you get to claim two exemptions one for yourself and one for your spouse, assuming no one can claim you as a dependent on their return.
When you have children you get to claim extra exemptions for them as well, saving you even more money! The 2015 personal exemption amount has increased to $4,000 up from $3950 in 2014. So a married couple with just one child will get to claim an exemption amount of $12,000!
As with most good things, there is a catch. For families with higher incomes, there is a phase out to consider. If your income is high enough you may not get to realize that full $12,000.
Earned Income Credit
This is another tax item that will ease your tax bill when you have children. This credit is geared towards working families with low to moderate incomes. Because it is a credit, it will reduce your tax liability dollar for dollar! In order to claim this credit, you must meet several conditions:
- Have a social security number, and be a US citizen or resident alien
- Income must be earned
- Cannot be married filing separate
- Cannot be considered a qualifying child of another (qualified child discussed later)
- Meet certain income limits for earned income, investment income, and AGI
- And fit at least one of the following descriptions:
- Have a qualifying child
- Be at least 25 but no older than 65 AND live in the US at least half the year AND cannot be a dependent of another.
So what makes a child a “qualifying child” you ask? Well it’s simple. A qualifying child is under age 19, a full time student under age 24 at year end, or they are permanently and totally disabled. They are related to you whether by blood, adopted, step, eligible foster, sibling, half-sibling or any descendant of them.
Odds are that if it’s a blood or legal relationship…they qualify!
You can also benefit on your return if you pay child care expenses. For children under age 12 you can benefit from any child care expenses you paid while you were working or looking for work. To receive this credit the qualifying child must live with you at least half the year. The credit is good for up to 35% of these expenses; again this depends on your income. There are phase outs for those with higher incomes.
Generally, you can receive a credit up to $3000 for one child and up to $6000 for two or more children.
Child Tax Credit
This credit is designed to help families offset the cost of raising children and may be worth up to $1000 per child! Qualification depends on the child’s age, relationship to you, financial support, dependent status, citizenship, residence and family income. To receive this credit you and your child must meet all seven items.
- Age: child must be under age 17 at the end of the tax year
- Relationship: same as qualifying child requirements
- Support: the child cannot have provided more than 50% of their own financial support
- Dependent: you must claim child as dependent on your return.
- Citizenship: child must be US citizen, US national, or resident alien
- Residence: child must have lived with you more than half of the year.
- If the child was born during the year, they are considered to have lived with you the full year
- Income: depending on your filing status, this credit will be reduced when your modified AGI reaches certain amounts.
Lastly, all those regular trips to the doctor for your bundle of joy’s checkups will pay off. You can deduct medical expenses so long as they are for prevention, diagnosis, treatment of physical or mental illness, or modification of any part or function of the body for health reasons. You can even deduct the cost of transportation to those appointments, your health insurance premiums, and costs for prescription drugs! The only catch is that these expenses must exceed 10% of your AGI in order to deduct.
If you have additional questions please, don’t hesitate to give us a call.