Your kids may get on your nerves during the winter season when they have to stay inside because it is so cold. However, when tax time comes around you are rewarded for remaining calm and sane when you file your taxes. This article is going to explain how dependents, such as your kids, benefit you during tax time:
• Dependency Exemption: If you have kids or another dependent you are eligible for a personal exemption deduction of $3,800 per dependent and in 2013 the amount increases to $3,900. This exemption helps you lower the amount of income that has to be withheld from your paycheck for the federal government. Not to mention the higher you are on the tax bracket the more each exemption is going to save you. For example, if you are in the 15% bracket you will save $570 for 2012 and if you are in the 25% bracket you will save $950 in 2012.
• Child Tax Credit: In addition to the dependency exemption you may also qualify for the child tax credit which is better than getting a deduction since it actually reduces the tax dollars owed. This credit gives you an additional $1000 for children under 17 if you are eligible to receive it. Married couples who make more than $100,000 and single parents who make more than $75,000 are not eligible, however.
• Child and Dependent Care Credit: If your kids are in daycare you know just how expensive it can be. The good news is Uncle Sam will help you with the cost. If you work or are actively looking for work and you pay child care for a child under the age of 13 you are eligible for the Child and Dependent Care Credit. This is another credit that reduces your taxes for the exact dollar amount. You could get 20 to 35% of your child care expenses credited based on your income.
• Earned Income Tax Credit: If your wages and self-employment earnings are below a certain level you can qualify for the earned income tax credit. The amount that you qualify for solely depends on the number of dependents that you claim. In 2012, if you had three or more children you could make up to $45,060 and still be eligible.
If you have two children it decreases to $41,952. For just one child it drops down to $36,920. This tax credit ranges from $5,891 for three kids and $475 for no kids. This credit is also refundable. So, if your credit is more than you owe the IRS will send you money back.
So, when your kids are working your nerves remember you will be rewarded for them during the tax season.
Don’t forget TurboTax has your back. TurboTax stays up to date with the latest changes in the tax laws and if you have any questions about claiming dependents we have the answers. Turbo Tax also has a free tax refund calculator you can use at any time to see your refund amount.