|
|
Having a child is a life changing event for parents, from having a wake up call and a new perspective, to a new timeline and different priorities. It is certainly less dramatic but still worth mentioning that having a child brings changes to your tax return as well.
|
|
It is common knowledge that you must determine your filing status before you can determine whether you must file a tax return, your standard deduction, and your tax. You also use your filing status to determine whether you are eligible to claim certain deductions and credits.
|
|
|
|
Generally speaking, your filing status depends on whether you are considered unmarried or married and therefore there are five filing statuses: single, married filing jointly, married filing separately, head of household and qualifying widow(er) with dependent child.
|
|
|
- The next fact to determine is whether you have a dependent child. There are five tests that can help you to determine if a child qualifies as your dependent.
|
|
1.)
The Relationship Test. To meet this test, a child must be:
|
|
- Your son, daughter, stepchild, foster child, or a descendant (for example, your grandchild) of any of them, or
|
|
- Your brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant (for example, your niece or nephew) of any of them.
|
|
|
2.)
The Age Test. According to this test, a child must be:
|
|
- Under age 19 at the end of the year and younger than you (or your spouse, if filing jointly),
|
|
- A student under age 24 at the end of the year and younger than you (or your spouse, if filing jointly), or
|
|
- Permanently and totally disabled at any time during the year, regardless of age.
|
|
|
3.)
The Residency Test. To meet this test, your child must have lived with you for more than half the year. There are exceptions for temporary absences, children who were born or died during the year, kidnapped children, and children of divorced or separated parents.
|
|
4.)
The Support Test. To meet this test, the child cannot have provided more than half of his or her own support for the year.
|
|
|
|
|
5.)
The Joint Return Test. To meet this test, the child cannot file a joint return for the year. |
|
|
Once you have determined that the child is your dependent, you are entitled to claim an exemption for your child as you do for yourself (and your spouse if married filing jointly). For tax year 2016, the personal exemption amount is $4,050, compared to $4,000 in 2015.
|
|
|
You may lose at least part of the benefit of your exemptions if your adjusted gross income (AGI) is above a certain amount. For 2016, the phaseout begins at the following amounts:
|
|
|
Filing Status
|
AGI Level That Reduces Exemption Amount
|
|
|
| Single |
$259,400
|
|
|
| Head of household |
$285,350
|
|
|
| Married filing jointly |
$311,300
|
|
|
| Married filing separately |
$155,650
|
|
|
| Qualifying widow(er) |
$311,300
|
|
|
|
|
The otherwise allowable exemption amounts are reduced by 2% for each $2,500 or part of $2,500 ($1,250 for a married taxpayer filing separately) that your AGI exceeds the threshold amount for your filing status.
|
|
|
|
Another possible change to your tax return is that you may be able to claim the Child and Dependent Care Credit if you paid expenses for the care of a qualifying individual to enable you (and your spouse, if filing a joint return) to work or actively look for work. You may not take this credit if your filing status is married filing separately.
|
|
|
The amount of the credit is a percentage of the amount of work-related expenses you paid to a care provider for the care of a qualifying individual. The percentage depends on your adjusted gross income.
|
|
|
|
The total expenses that you may use to calculate the credit may not be more than $3,000 (for one qualifying individual) or $6,000 (for two or more qualifying individuals). Expenses paid for the care of a qualifying individual are eligible expenses if the primary reason for paying the expense is to assure the individual's well-being and protection. If you received dependent care benefits that you exclude or deduct from your income, you must subtract the amount of those benefits from the dollar limit that applies to you.
|
|
|
|
|
|
| A qualifying individual for the child and dependent care credit is either your dependent qualifying child who is under age 13 when the care is provided, or your spouse who is physically or mentally incapable of self-care and lived with you for more than half of the year, or an individual who is physically or mentally incapable of self-care, lived with you for more than half of the year, and either: (i) is your dependent; or (ii) could have been your dependent except that he or she has gross income that equals or exceeds the exemption amount, or files a joint return, or you (or your spouse, if filing jointly) could have been claimed as a dependent on another taxpayer's return. |
|
|
You may also benefit from the Child Tax Credit which is in addition to the credit for child and dependent care expenses.
|
|
|
The IRS announced the Child Tax Credit (CTC) will remain at $1,000 per child in 2016 and 2017. Families must have at least $3,000 in earned income to claim any portion of the credit and can receive a refund worth 15% of earnings above $3,000, up to $1,000 per child.
|
|
|
The maximum income levels for getting the full CTC payment of $1,000 per child for year 2016 are: $110,000 (joint return), $75,000 (individual) and $55,000 (married, filing separate).
|
|
|
The CTC payment works as a deduction and credit. The deduction component means it is not fully refundable and only reduces your tax liability. So if the amount of your CTC is greater than the amount of income tax you owe, then you may not get the entire CTC. But you may still be able to claim the Additional Child Tax Credit (ACTC) which is the refundable component of the child tax credit (but treated as a separate payment). The ACTC is equal to the lesser of the un-allowed Child Tax Credit, or 15% of your earned income that is more than $3,000.
|
|
| The Additional Child Tax Credit being refundable means that you will receive the amount awarded in the form of a refund. If the non-refundable child tax credit was phased out due to adjusted gross income limitations, no additional credit will be allowed. |
|
| The IRS has already announced that it will have to hold/delay refund payments for people claiming the Earned Income Tax Credit (EITC) or Additional Child Tax Credit (ACTC) due to additional anti-fraud safeguards/reviews under newly enacted laws (PATH Act). While the IRS will continue to accept returns claiming EITC and ACTC, the new law requires the IRS to hold refunds on tax returns claiming these popular credits, even if you have claimed it successfully in past years, until Feb. 15th 2017. Refund payments will subsequently be delayed past the current schedule up to the week of Feb 27th, 2017 or later (assuming all other items are in order). |
|
Most of all, remember that, to save time and make sure you claim all the tax credits and/or deductions you may be entitled to, you should enroll help from a tax professional.
|
|
|
|
