Taking care of kids can cost parents millions of fortune. But do you know that there is a financial help provided to parents?
The U.S. government has been undertaking a major overhaul of the welfare system, which includes development on the tax system of the country. Hence, three major tax benefits that parents need to know about are discussed here.
Tax Exemption of Dependents
Parents are already entitled to a tax exemption for dependents. This means a reduction of taxable income. The deduction is subject to the bracket system. For example, if a parent is in the 25 percent bracket, the personal exemption cuts the taxes by $1,000.
However, high earners don't get the full benefit. As stated by the IRS report, "Personal exemptions start to phase out for 2015 at $309,900 for married couples filing jointly and completely disappear at $432,400."
Child Tax Credit
Another benefit for some parents is the Child Tax Credit which entitles parents to a $1,000 tax credit for each child. The Child Tax Credit delivers a dollar-for-dollar reduction on the tax bill, which means a reduction on the total taxable income. However, this credit is applicable for parents with a qualifying child.
Child and Dependent Care Credit
Parents may sign up for a dependent-care Flexible Spending Account at work, which allows the parents to pay for up to $5,000 of care, creating such savings of $1,250 in the 25 percent tax bracket. Even if the parents have an FSA or not, they can still take the child care tax credit worth 20 percent depending again on the income bracket.
According to Naomi Ganoe, a CPA and director at the accounting firm CBIZ MHM, "A married couple filing jointly with an adjusted gross income over $43,000 in 2015 can reduce their tax hit by 20% of child care bills up to these amounts, a maximum of $1,200 for families with two or more kids."
