If you’re expecting a new child, there are a lot of areas of your life that are about to change forever. One area in which you can expect to see some changes is your tax return. In the tax world, a new child represents an opportunity for a big tax break. It’s important to understand which tax credits are available to you and how you can seize the opportunity to use them.
Here’s a quick overview of tax breaks and child tax credits in Jamestown, ND.
Expanded child tax credits
Under the Tax Cuts and Jobs Act passed in 2017, the child tax credit doubled from $1,000 to $2,000 per child. In addition, the rules had previously been that the credit was only available for taxpayers with income below $110,000 for a married couple or $75,000 for single people, but now those limitations are $400,000 and $200,000.
The other big change that occurred under the new legislation was that up to $1,400 of the child tax credit is refundable. Previously, the credit had not been refundable at all, though some families would qualify for an additional refundable tax credit. However, the refundable portion of the child tax credit has a maximum of 15 percent of your earned income beyond $4,500, which means you must have earned at least $13,833 to get a full $1,400 refund.
This is big, because tax credits are much more valuable than deductions. Deductions cut down on your taxable income, but credits represent a dollar-for-dollar cut on your owed taxes.
The tax legislation left the childcare tax credit in place. The value of that credit will vary based on your income. If you earn $43,000 or more, you can claim 20 percent of childcare costs. If you earn less than $15,000 you can claim 35 percent of childcare costs. You can claim up to $3,000 for one child and $6,000 for two or more children.
Earned income tax credit
The earned income tax credit isn’t exactly a credit you get due to having a child, but having a child can help you qualify. Having a child raises the amount of income you can earn while being eligible for that tax credit, so you may find yourself in a situation where you were not previously eligible, but now you are thanks to adding a new member to your family. Each successive kid can raise that income limit.
No personal exemptions
The big thing that was removed from the previous tax rules is the personal exemption. Parents no longer get to claim personal exemptions for their children, even if they were born before the new rules went into effect, because personal exemptions do not exist anymore.
For more information about the various issues associated with child tax breaks in Jamestown, ND and what you need to know about filling out your taxes when you have a new child, contact the team at Craig S. Hanson, CPA today. We look forward to helping you make sense of your taxes and explore any new possibilities that may be open to you.