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Tax Benefits for Having Dependents

Tax Benefits for Having Dependents
  • Kids are great tax-savers when you file your taxes, but they may be overwhelming when they are locked up in the house over the summer or winter break or when taking online programmes at home.
  • Even though the dependency exemption was repealed as part of tax reform, there are still several tax advantages you may use to your advantage if you have children or other dependents in order to maximise your tax refund.
  • Although we’ll explain the tax advantages of having dependents below, you don’t need to worry about remembering these guidelines when it’s time to file your taxes. Your eligibility for tax deductions and credits will be determined by the answers to a few straightforward questions that TurboTax will ask you.
  • If you still have questions, you may also connect live through one-way video to a tax professional with an average of 12 years of expertise using TurboTax Live to obtain assistance. Year-round, English and Spanish-speaking tax specialists are available at TurboTax Live. They can even evaluate, sign, and submit your tax return from the comfort of your home.

Credit for Child Tax

You might be qualified for the Child Tax Credit, a tax credit that you receive for your dependent children and which is superior to a tax deduction in that it lowers your taxes on a dollar-for-dollar basis. The Child Tax Credit under the American Rescue Plan increased from $2,000 to up to $3,000 each qualifying child over the age of six and up to $3,600 for each qualifying child under the age of six beginning in tax year 2021 (the taxes you file in 2022). This is the first time under the new clause that families with children under the age of 17 will be qualified for this credit. If your income is less than $150,000 for married couples filing jointly, $75,000 for single people, or $112,500 for heads of household, you will be qualified for the entire benefit.

  • Families may still be able to claim the Child Tax Credit up to $2,000 under the current tax provision for each qualifying child under 17 even if they earn more than the modified adjusted gross income indicated above and are therefore ineligible for the increased $3,000 or $3,600 credit. Individuals earning up to $200,000 or married couples filing jointly earning up to $400,000 can still take advantage of this credit amount.
  • Families who qualify may receive an advance payment of up to $300 per month for each child under the age of six and up to $250 per month for each kid beyond the age of six from the Child Tax Credit for 2021. These payments may be sent ahead of time and reflect a portion of the tax year 2021 child tax credit rather than receiving this credit as a piece of your return in 2022.

Additional Dependent Credit

You might still be able to claim the Other Dependent Credit of up to $500 per qualifying individual if you don’t qualify for the Kid Tax Credit, your dependent child is above 17, or you are supporting a friend or relative. If your adjusted gross income exceeds $200,000 (or $400,000 for married couples filing jointly), the credit starts to phase off.

Child and Dependent Care Credit

Even though child care is pricey, Uncle Sam can help you pay for it. The Child and Dependant Care Credit is available to taxpayers who are employed or actively looking for employment and who pay for childcare for a dependent who is under the age of 13 (or any age if the dependent is disabled). Expenses for private kindergarten, daycare, after-school programmes, summer and winter day camps, as well as after-school activities, all qualify.

Based on your childcare costs, this credit reduces your taxes on a dollar-for-dollar basis. The Child and Dependent Care Credit saw some significant adjustments under the American Rescue Plan, but only for the tax year 2021.

The spending cap was raised from $3,000 to $8,000 for a single qualifying individual and from $6,000 to $16,000 for multiple qualifying individuals.

The maximum credit is limited to $8,000 ($16,000 x 50%) due to the change in the proportion utilised to calculate the credit from up to 35% to 50% of expenses.

Although there is an income where the credit is totally phased out, income phase outs have increased. The credit was reduced prior to the American Rescue Plan for incomes beyond $15,000. Only for the tax year 2021, the credit is phased out at an adjusted gross income of $438,000 and is lowered at an adjusted gross income of more than $125,000.
The credit is entirely refundable for tax year 2021, so you can claim it even if you don’t owe any taxes.

Earned Income Tax Credit (EITC)

  • If your earnings or self-employment income are below a specific income level, a special tax credit may be available to you. Your credit amount is determined by your income, filing status, and the number of qualified children you have.
  • If you have three or more children, you can earn a maximum refundable tax credit of $6,728. If you don’t have any children, you can receive a maximum refundable tax credit of $1,502. The Earned Income Tax Credit is refundable, unlike some other tax credits, so if the credit is higher than the tax you owe, you can still get a tax refund for the difference.
  • In general, reduced income may potentially result in a reduction in the amount of Earned Income Tax Credit you receive if you made less money as a result of the events of 2021. The higher 2019 earned income can be used to calculate your 2021 earned income tax credit, which could result in a bigger 2021 earned income tax credit thanks to a specific lookback provision.

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