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. The 2017 Tax Cuts and Jobs Act doubled the standard deduction to $24,000 for married couples, but it eliminated personal exemptions for family members. However, there are several tax breaks that can ease the family’s tax break, including:
Child Tax Credit: The Child Tax Credit has been doubled under the new tax law. This is a bottom-line credit of $2,000 for each child up to the age of 17 that comes right off your tax bill. The income qualification has also been increased with the phaseout threshold being increased from $110,000 to $400,000 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 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.