Raising a family in the U.S. can be expensive, which is why it is crucial for taxpayers with dependents to do everything they can to minimize their tax bill. Thankfully, the government has created several tax breaks that are designed to ease the burden on families. Below is a list of three tax provisions that all families should be aware of.
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1. Child and Dependent Care Credit
We all know that paying for child care while we work can be quite expensive. Thankfully, the IRS offers families a tax credit to help offset a portion of these costs.
The Child and Dependent Care credit provides a tax break for up to $3,000 in child-care expenses for families with one child or $6,000 for those with multiple children. To qualify for the credit, the child must be under age 13. In addition, married parents must file a joint return and both must have earned an income from a job or business.
The credit value will vary based on the families' income level, but the range is 20% to 35%.
|
Adjusted Gross Income |
Percentage |
Adjusted Gross Income |
Percentage |
|---|---|---|---|
| $0-$15,000 |
35% |
$29,000-$31,000 |
27% |
|
$15,000-$17,000 |
34% |
$31,000-$33,000 |
26% |
|
$17,000-$19,000 |
33% |
$33,000-$35,000 |
25% |
|
$19,000-$21,000 |
32% |
$35,000-$37,000 |
24% |
|
$21,000-$23,000 |
31% |
$37,000-$39,000 |
23% |
|
$23,000-$25,000 |
30% |
$39,000-$41,000 |
22% |
|
$25,000-$27,000 |
29% |
$41,000-$43,000 |
21% |
|
$27,000-$29,000 |
28% |
$43,000+ |
20% |
DATA SOURCE: IRS.
Thus, a family in the 35% bracket with multiple children can claim a maximum credit of $2,100 ($6,000 * 0.35). However, it is worth nothing that this credit is not refundable. Instead, it can only be used to offset a tax liability.
2. Child Tax Credit
The Child Tax Credit is another must-know tax break that can be worth up to $1,000 for each qualifiying child under than age of 17. To quality, a child must be your dependent and related to you. You also have to live with the child for at least 50% of the year and you have to provide the child with at least half of his or her financial support.
Like most tax credits, how much you qualify for depends largely on your income. Here's a table that shows when this credit will start to phase out.
|
Filing Status |
Child Tax Credit Phaseout Begins at This Income Level |
|---|---|
|
Married filing jointly |
$110,000 |
|
Married filing separately |
$55,000 |
|
All other taxpayers |
$75,000 |
TABLE SOURCE: IRS.
Just like the Child and Dependent Care Credit, the regular Child Tax Credit isn't refundable. However, there is an additional provision to this credit called the Additional Child Tax Credit that might provide a refund in certain circumstances. Accessing this credit has additional requirements, but the potential for thousands in savings could make the extra hassle worth it.
3. Earned Income Tax Credit
The Earned Income Tax Credit is one of the most lucrative tax breaks available to low- and middle-income taxpayers. When this provision first went into law, it applied only to families with children, but over the years, it has expanded to include single filers and couples without kids.
Qualifying for this credit requires the filer to have earned an income from a job or business. The amount of tax credit that a filer will receive rises with their income but only up to a certain level. After reaching its peak, the credit starts to phase out. In addition, a filer's investment income must be below $3,400 or less for the year in order to qualify.
Here's a table that shows the levels for zero to three or more children:
| Filing Status | Zero |
One |
Two |
Three or More Children |
|---|---|---|---|---|
|
Single, head of household, or widowed |
$14,880 |
$39,296 |
$44,648 |
$47,955 |
|
Married filing jointly |
$20,430 |
$44,846 |
$50,198 |
$53,505 |
Data source: IRS.
And here's a look at the maximum amount of credit available for the 2016 tax year:
- $6,269 with three or more qualifying children
- $5,572 with two qualifying children
- $3,373 with one qualifying child
- $506 with no qualifying children
What's great about the Earned Income Tax Credit is that in many cases it is refundable, so the filer can claim it even if they do not have a tax liability. That provides many families with a nice income boost during tax time.
If you are a filer with a family, make sure you dig into the details of these three tax breaks to see if you qualify. The potential to save thousands of dollars at tax time easily justifies the extra effort.
