Kids can be overwhelming when they are cooped up in the house in the wintertime, but they are also blessed tax-savers when you file your taxes. Here are some of the tax benefits for having children and other dependents:
Dependency exemption. You can claim a dependent exemption deduction of $4,050 for each child and other dependent for 2016 ($4,000 for 2015). Those exemptions reduce the portion of your income that is subject to federal tax. If you are in the 15% bracket this may save you $607.50 for 2016, and at 25%, $1,1012.50. The higher your tax bracket, the more each dependency exemption saves you.
Child Tax Credit. You may also be eligible for a tax credit, which is even better than a deduction, since it reduces your taxes dollar for dollar. The Child Tax Credit is an additional $1,000 credit you may be able to claim for children under 17. For married couples with income over $110,000 or $75,000 for a single parent, the credit phases out.
Child and Dependent Care Credit. Child care is expensive, but Uncle Sam can help you out with the cost. If you are working or actively seeking work and you pay child care for your dependent who is under age 13, you can claim the Child and Dependent Care Credit.
This credit is a dollar for dollar reduction of your taxes, based on your child care expenses up to 35% of $3,000 for one child or $6,000 for two or more children. The credit ranges from 20 to 35 percent of your child-care expenses, depending on your income. Nursery school, private kindergarten, after school programs and day care are all qualifying expenses.
Earned Income Tax Credit. There’s a special tax credit available if your wages and self-employment income fall below a certain level. How much you can earn and qualify for depends on how many dependent children you have.
For 2016, if you have three or more children, you can earn up to $47,955 ($53,505 married filing jointly) and qualify. With just two children, that drops to up to $44,648 ($50,198 married filing jointly). Only one child, your earnings and adjusted gross income must be less than $39, 396 ($44,846 married filing jointly). The refundable tax credit you can receive ranges from a maximum of $6,269 if you have three children, to $506 if you have no children. Unlike other tax credits, the Earned Income Tax Credit is refundable, so if the credit is greater than the tax you owe, the IRS will still send you the difference.
So next time the kids are driving you crazy, remember the tax savings and give them a big hug instead.
Don’t worry about knowing these rules. TurboTax will ask you simple questions and give you the tax deductions and credits you’re eligible for based on your answers.