If you have children now or are planning to have them, know that there are tax credits, tax exemptions, and other ways to keep more of your hard-earned wealth working for you and your family.
WOMAN: If you have children now or are planning to have them, know that there are tax credits, tax exemptions, and other ways to keep more of your hard earned wealth working for you and your family. Let's look at several of them. The child tax credit is a big chunk of change for parents with a child 13 and under. For some low income taxpayers, the credit is refundable. This means that if it exceeds your tax liability, you will be paid the difference.
The childcare credit provides a tax credit of 20% to 35% of the first $3,000 in childcare expenses that you pay per child per year. The more you earn, the less of a credit you can take. Dependent care accounts, also called childcare reimbursement accounts, are offered by employers and let you set aside money from your earnings for various expenses for the care of your children. This money isn't counted in your earnings for the year, and is therefore, free of federal, state, and social security taxes.
The maximum contribution is $5,000 for married couples filing their taxes jointly and $2,500 for married couples filing separately. The IRS now allows a $500 annual carryover of unused contributions. You must have earned income in order to contribute. You cannot use both the dependent care account and the child care tax credit for the same expenses. But one advantage for you is that if you use up your money from your dependent care account, you may be able to take the credit for expenses incurred beyond that amount up to the legal limit.
The earned income tax credit is for certain people who work and have low wages. The amount you get varies, but it's larger if you have children. The more children you have, the larger the credit. If the credit should exceed the amount of tax you owe, the result is a tax refund that the IRS will send you. Stay financially fit, friends.