Child Tax Credits: The tax benefits of parenthood

Posted On: January 23, 2018  0 Comments
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Are you reaping all the tax benefits of being a parent (or a grandparent)? The Child Tax Credit, Earned Income Tax Credit, and the Child and Dependent Care Credit all make it a little easier when the tax return due date approaches.

Child Tax Credit and
Additional Child Tax Credit

The Child Tax Credit is worth up to $1000 per eligible child.

To be an eligible child, they must:

Have been under 17 on December 31, 2017
Be a qualifying relation (your own, adopted, step or foster child, your (step)brother, (step)sister, niece, nephew, or grandchild)
Have not provided more than half of their own financial support
Have been claimed as a dependent on your tax return
Be a U.S. citizen, national, or resident alien
Have lived with you for more than half the year (with some exceptions)

To claim the full credit, your modified adjusted gross income (MAGI) must be below $75,000 for single filers and $110,000 for joint filers. For each $1000 of income above the threshold, the maximum credit is reduced by $50. The credit is nonrefundable in most cases.

If you have at least $3,000 in earned income, you may be eligible to take the Additional Child Tax Credit (ACTC). The ACTC is a refundable credit you may be eligible to receive if your Child Tax Credit is larger than your tax liability. The maximum ACTC is 15% of your earned income over $3,000, up to the remainder of your Child Tax Credit and a maximum of $3000.

The new expanded child and dependent credits will come in to effect for the 2018 tax year.

Earned Income Tax Credit

The IRS estimates that a large percentage of people who are eligible for the Earned Income Tax Credit (EITC) don’t take it. Frequently these taxpayers are grandparents who are the primary caretakers of their grandchildren and are not aware that they can claim the credit.

To qualify, you must:

File a return, even if you are otherwise not required
Have earned income for the year
Have been a U.S. citizen or resident alien for the entire year
Have valid social security numbers for yourself, your spouse, and any qualifying children
Not have investment income exceeding $3,450
Both your earned income and adjusted gross income (AGI) must be less than $49,298 if filing single or $54,998 if filing jointly with 3 or more children. Income limits are lower for fewer or no qualifying children.

If you have no qualifying children:

You or your spouse must be born on or after January 1, 1953 and on or before December 31, 1992
You and your spouse cannot be claimed as a qualifying child or dependent on somebody else’s return

The maximum credit for 2017 is $6,318 for taxpayers with 3 or more qualifying children. Special rules and restrictions come into play for individuals receiving disability payments, members of the military, or if another of the child’s family members also qualify for the EITC.

Child and Dependent Care Credit

You may be eligible for the Child and Dependent Care Credit if you paid care expenses so you could work. The credit is a percentage of your allowed expenses (maximum of $3,000 for one dependent or $6,000 for two or more). This percentage varies based on your income, ranging from 20%-35%.

You must furnish the Taxpayer Identification Number of the care provider, and it cannot be your spouse, the dependent’s parent, any of your dependents claimed on your return, or your own child age 18 or under.

This credit may not be taken on top of pretax dollars withheld by your employer for child care expenses.
 
If you are saving for college or your child already is a college student check out the tax benefits of higher education.

Confused? That’s why you have us! Our professional tax preparation services mean we have it covered. We can walk you through the credits you may be eligible for at your tax prep appointment and answer any questions you have. Call 860-216-2195 to schedule your appointment.

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