Children and Tax Breaks
There’s much to celebrate with the arrival of a newborn, including some much needed tax breaks that can lessen the pinch of a bigger family budget. Along with the big tax exemptions each child represents there are several tax breaks that can ease the family’s tax break, including:
Dependency Exemption: Parents can claim an exemption for each family member who is a dependent. Even if your child is born on the last day of the year, you can claim the exemption for the full year.
Child Tax Credit: This is bottom line credit of $1,000 for each that comes right off your tax bill. Families with higher incomes are phased out of the tax credit starting at $110,000 for joint returns.
Dependent Care Credit: If both parents work and pay for day care, they can claim a tax credit of up to $3,000 per child under age 13 up to $6,000 per family.
Kiddie IRAs: Of course, your child has to earn an income in order to contribute money to a Kid IRA, but it’s a great benefit when they begin working summer or weekend jobs, even just mowing lawns.
Head of household status: Filing as head of household instead of jointly could increase the standard deduction. Head of Household status is reserved for families in which one parent provides more than half the income.
More take home pay: All of these benefits can translate into bigger paychecks if you adjust your withholding accordingly. For a family with two children, between the Child Care Credit and the Dependency Exemption, they could increase their take home pay by as much as $5,000 a year depending on their tax bracket.