It is often very overwhelming for new parents to handle the expenses of a new child. You can always prepare yourself as much as possible, but there are always going to be different factors that you did not consider that pop up along the way. The federal government gives a number of tax breaks that help with the cost of raising a child. In this blog post, we will discuss the two tax breaks that most parents qualify for. These are called the dependent exemption and the child tax credit.
Understanding The Dependent Exemption:
The IRS does not tax every dollar that you earn. The IRS gives you a personal tax exemption to cover your basic living expenses. A single person takes one personal exemption, while married couples take two. This is one for each of them. When you add a new child to your family, you can add one more exemption to your income taxes. This is called the Dependent Exemption.
How much money you save with the Dependent Exemption all depends on your tax bracket. The higher your tax bracket, the more you save.
Once your adjusted gross income exceeds a certain threshold, there is a phaseout on the dependent exemption.
Check our source below for more specific information about the amount.
If you do qualify for this dependent exemption, it is easy to claim it on your tax return. You just need to make sure you complete the proper paperwork.
Understanding The Child Tax Credit:
Another tax break that parents can claim is the child tax credit. If your income is below $110,000 for married couples filing jointly, $75,000 for a single head of household, or $55,000 for a married person file separately, you can claim a child tax credit of up to$2,000 per child. This amount has increased over time. The amount is all based on your income. This child tax credit has been available since 1998. This credit reduces the amount that you owe to the IRS.
Want to see if you are eligible? Check the source below!