We have to make decisions every day in our life. Some decisions are simple, like whether or not we go to work on any particular day and do not hugely affect our lives. But some decisions change the way we live. One such decision is having a child. Parenthood is a major life-changing decision, and it impacts almost every aspect of our lives. However, we will explore the changes related to your tax life in this article.
Generally, having a child means that your expenses will increase, and you have to adjust or enhance your finances accordingly, but that is not true in the case of taxes. Taxpayers are entitled to refunds and tax credits for each qualifying child. The government aims to empower the parents and caregivers so that they can take better care of your child.
As a parent or caregiver to a legally adopted child, you are entitled to the following credits in Columbia, MD.
Child Tax Credit and Additional Child Tax Credit:
The IRS child tax credit allows you to enjoy a tax credit worth $2,000 for each qualifying child you have. In addition to providing refunds for children, tax reform also provides a $500 non-refundable credit for qualifying dependents. However, this additional credit for dependents is temporarily allowed and may discontinue in future. It is pertinent to mention that out of $2,000 credit for each child, only $1,400 is refundable.
Earned Income Tax Credit (EITC):
Depending on how many children you have, you are entitled to the earned income tax credit. The EITC is one of the most helpful among all the tax credits and refunds because it is a refundable tax credit. You can claim a refund against the EITC if you owe the IRS, amount less than the refund.
Child and Dependent Care Credit:
Having a child puts a considerable amount of financial pressure on the parents. Sometimes, both parents need to work in order to meet the expenses. To achieve that, the couple needs to hire a childcare service to take care of their children while they work. The cost of childcare can be offset with the help of Child and Dependent Care Credit.
The adoption costs can be eliminated with the help of Adoption Credit. However, this credit is non-refundable.
Education is an important part of parenting expenses. Parents need to plan for their children’s education from early years so that they don’t have to bear a huge burden at the college stage. Plan 529 is the most suitable instrument to achieve that. You can lower the state taxes by contributing to the 529 Plan. Additionally, there is no tax on withdrawal from this pan for educational purposes.
The above-mentioned tax refunds and credits can be of huge help from the government to offset or reduce the parenting expenses. Make sure that you get a birth certificate for your newborn child and apply for a social security number right after the birth of every child. You just need to get your documentation in order and enjoy the tax benefits after having children.
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Zee Maq is a content writer who specializes in writing business and finance content. She has nine years of experience and loves to provide problem-solving content to help people tackle challenges in their everyday lives.