It’s National Working Parents Day: Here Are Tax Credits That Work for You
Editor’s Note: It’s National Working Parents Day. This post celebrates you, the working parent. Read on to learn about some common tax benefits and credits for parents.
Being a working parent is challenging, there is no doubt about it. It often involves balancing a full-time job, seemingly endless childcare drop-off and pick-ups, and beyond that the daily duties like housework and maintaining a solid relationship with loved ones. Parents around the country work incredibly hard to ensure their kids have the basic needs and create a haven of raising a smart, happy and healthy child.
Although the origins of Working Parents Day are unknown, today has so much merit to the millions of Americans who juggle the 9-to-5 with child rearing.
You deserve a break – so we are here to inform you of some tax strategies to potentially reduce your overall tax burden:
1. Child Care Credit
If you pay for childcare while you work, you may be able to earn a tax credit. For qualifying parents, the credit offers 20% to 35% of qualified childcare expenses. The percentage depends on your adjusted gross income (AGI), but the maximum amount available is:
- $3,000 for one qualifying person
- $6,000 for two or more qualifying persons
(View the specifics on the Child Care Credit.)
2. Claiming Your Child as a Dependent
Claiming your child as a dependent on your yearly tax return could shelter you up to $4,050 of your income from tax in 2016, saving you a quick $1,000 if you’re in the 25% bracket, notes Kiplinger. Again, exemptions depend on your AGI.
(View the specifics on Claiming Dependents.)
3. Child Tax Credit
The child tax credit allows you to claim a credit of $1,000 for each qualifying child until the child reaches the age of 17. This credit can be both nonrefundable and refundable. The refundable portion of the child tax credit is called the additional child tax credit.
This credit does have limitations: it is phased out at higher income levels – $110,000 on joint returns and $75,000 or higher on single returns.
(View specifics of the Child Tax Credit.)
4. Head of Household Filing Status
As if balancing work with parenthood with two contributing members was not enough, being a single parent comes with its inherent challenges of bearing the weight of responsibilities solo. Fortunately, there is potential tax relief for you.
As a single person, having a child may allow you to file as a “head of household” rather than a “single” filing status, offering a better tax deduction that could punt you to a lower tax brackets.
To qualify, you must:
- Be considered unmarried on the last day of the tax year – there are situations, like if you are an estranged spouse, where you may qualify as well
- Paid more than half of the cost of maintaining the household for the year
- Maintained a household for a qualifying child or qualifying relative
(View the specific qualifications for this tax designation.)
5. Earned Income Tax Credit (EITC)
Did you know that only four of five families who qualify for Earned Income Tax Credit actually claim the credit? The EITC is a refundable tax credit. That means, even if your tax liability is zero, if you qualify for EITC, the credit will be paid to you. It was created to benefit low-income, working families. However, the criteria for claiming the credit can be confusing so connect pay attention to the details.
(Determine if you qualify for the EITC.)
6. Adoption Credit
Did you know there are around 1.5 million adopted children in the United States, representing 2.5 percent of all U.S. children? And, if a child is legally yours, even if not biological, you could benefit from a tax perspective with the Adoption Credit. This credit was established by the government to reduce the financial brunt of adoption costs, offering a credit of up to $13,400 in tax (in 2016). The great thing about this credit is that even if you can fully utilize your allowable credit in one tax year you can carry the unused portion forward and claim it in future years.
(Can you claim the Adoption Credit? Find out now.)
We hope this post serves as a resource for all working parents out there. Happy National Working Parents Day!