This year, we all got an extension for the deadline to file our taxes because the traditional date falls on the District of Columbia’s holiday, Emancipation Day which celebrates the end of slavery in DC. So instead of April 15, this year taxes are due on April 29, 2016!
So as you prepare to file and head off to the tax man last minute, here are 5 credits parents need to know about and should consider claiming this year.
1. Exemptions for dependents
You can claim your new baby as a dependent, which, for 2015, exempts $4,000 of your hard-earned money from taxation. For 2016, this number actually goes up to $4,050. This exemption is phased out at certain income levels. For 2015 taxes, the limit is $258,250 for single parents and $309,000 for married couples filing jointly. For 2016, the limits are $259,400 and $311,300, respectively. Similarly, you can’t claim an exemption if you’re subject to the Alternative Minimum Tax.
2. Child Tax Credit
Depending on your income, you may be able to claim a $1,000 tax credit every year until your child reaches age 17. Better yet, you can start claiming the credit the year your child is born, even if that doesn’t happen until December. In other words, if you had a baby on Dec. 31, 2015, you can still snag that $1,000 for 2015. Sweet!
Remember, unlike with deductions, credits lower your tax bill dollar for dollar. However, similar to exemptions for dependents, the child tax credit phases out at higher income levels, though you cannot even claim it until you’ve earned more than $75,000 if you’re single or $110,000 if you’re married and filing jointly. The credit has the ability to reduce your tax liability to zero, but it is not refundable, meaning, it cannot count towards a refund from the IRS! Booo!!
3. Earned Income Tax Credit
Don’t worry those of you in the low to moderate income bracket, the Earned Income Tax Credit makes you eligible for up to 3,359. However, the Earned Income Tax Credit (EITC) is a tax benefit for those with with only one qualifying child. And the EITC is a fully refundable credit, which means that if it’s more than large enough to reduce your tax liability to zero, then you’ll receive any remaining credit money as a refund from the IRS.
Yippeee!
4. Child and Dependent Care Credit
Childcare costs increases each year and makes up the chunk of most family budgets. The Child and Dependent Care Credit lets you claim up to 35% of the cost of qualifying child care expenses (such as a day care center or summer camp) up to a maximum of $3,000 for one child under 13, or $6,000 for two or more children under 13. For example, if you have an infant in day care and pay $5,000 per year, you can claim up to $1,050 (35% of the $3,000 maximum) as a tax credit depending on your income.
Lower income people who earn less than $15,000 can qualify for the full 35%. That percentage falls by 1% for every additional $2,000 of income you earn until it reaches 20% for an income of $43,000 or more. You must have earned income to qualify for the credit, and if you’re married, you must file a joint tax return. Additionally, you must have paid a child care provider for the purpose of enabling you and your spouse to either work or look for work.
Unlike some other credits, this one doesn’t have an income limit, however families with Stay-At-Home moms who have a nanny caring for the kids can NOT take this credit. It is also refundable.
5. Adoption credit
If you adopted a kid last year, you can claim up $13,400 per child for qualified adoption expenses. This credit phases out, depending on the income at $201,010 which is a higher income phase out level compared to the income level for the child tax and child care credits. Though this credit was once refundable, that’s no longer the case . However, any credit in excess of your tax liability can be carried forward for up to five years.
Of course, keeping track of all these tax breaks could prove challenging when you’re juggling the dozens of daily tasks that come with raising children. But when you sit down to do your taxes this year, it pays to see whether you’re eligible for any of them, because any amount of money can go a long way toward diapers, school supplies, and the ever-growing list of supplies you’ll need to navigate the wild and crazy journey that is parenthood.