Kids can be overwhelming when they are cooped up in the house during summer break, but they are also blessed tax-savers when you file your taxes.
Even though the dependency exemption of $4,050 was eliminated under the new tax law beginning with your 2018 taxes (the ones you file in 2019), there are still some tax benefits you can take advantage of to maximize your tax refund if you have kids and other dependents.
Child Tax Credit
You may be eligible for a tax credit, which is even better than a tax deduction since it reduces your taxes dollar-for-dollar. The Child Tax Credit is increased to a $2,000 credit under the new tax law and is available if you have a dependent child under the age of 17. The income threshold at which you can claim the Child Tax Credit is raised to $400,000 for couples who are married filing jointly and $200,000 if you are single.
If your dependent child is over 17 or you support a relative, you may still be able to claim the new Other Dependent Credit of $500.
Child and Dependent Care Credit
Childcare is expensive, but Uncle Sam can help you out with the cost. If you are working or actively seeking work, and you pay childcare for your dependent who is under age 13 (no age limit if disabled), you can claim the Child and Dependent Care Credit.
This credit is a dollar-for-dollar reduction of your taxes, based on your childcare expenses, up to 35% of $3,000 ($1,050) for one child or $6,000 ($2,100) for two or more children. The credit ranges from 20% to 35% of your child-care expenses, depending on your income. Nursery school, private kindergarten, after-school programs, and daycare are all qualifying expenses.
Earned Income Tax Credit (EITC)
There’s a special tax credit available if your wages or self-employment income are below a certain income level. The amount of credit you receive is based on your income, filing status, and how many qualifying kids you have.
The refundable tax credit you can receive ranges from a maximum of $6,557 for three or more children down to $529 with no children. Unlike other tax credits, the Earned Income Tax Credit is refundable, so if the credit is greater than the tax you owe, you can still receive the difference as a tax refund.
The gross income limits for tax year 2019 (the taxes you file in 2020): if you have three or more children, you can earn up to $50,162 ($55,952 if you are married and filing jointly) and qualify. With just two children, that drops to up to $46,703 ($52,493 married filing jointly). If you only have one child, your earnings and adjusted gross income must be less than $41,094 ($46,884 married filing jointly).
So next time the kids are driving you crazy this summer, remember these tax savings and give them a big hug instead.
TurboTax Has You Covered
Don’t worry about trying to figure out which tax credits or deductions you should take, or if you should itemize or take the standard deduction. TurboTax will ask you simple questions about you and give you the tax deductions and credits you are eligible for based on your answers to get you the biggest tax refund.
As a Credit Union member, you can save up to $15 on TurboTax federal products. Click here to get you TurboTax savings! And we can make your next tax year even simpler with a free, Tax Saver Account at FIGFCU. Small, automatic deductions — you hardly notice these — build over the year with excellent interest. It provides a lump sum that pays for all your annual and quarterly tax liabilities, no sweat.