Parents have the option to take advantage of certain applicable tax credits in order to reduce their taxes and help in reducing the expenses related to raising a child. Being a parent is probably one of the happiest moments in a person’s life. However, it does not come easy, especially for the pockets. Child care is expensive and any help that a parent can get to reduce the expenses would mean a lot.
Thankfully, the government provides for certain tax credits to parents with dependent children.
The following are some of the tax credits that parents can use to lower their taxes: child tax credit and dependent exemption.
Each parent is allowed to get an exemption for their child from the day the child is born until the child is below 19, and is actually dependent on the parents. There may still be allowable exemptions for dependent children under certain circumstances.
The amount that you can claim depends on the income both parents make in a year. For claims on dependency tax exemption, fill out line 6c of Form 1040 or 1040A; and make sure that the rest of the form is properly filled up.
Child Tax Credit
Another parent tax credit is the child tax, specifically intended to help parents with low income, that’s why this credit is only for those who make less than a certain amount in a year. Here, the parents get a certain amount of tax credit for each qualifying child under the age or 17.
The threshold income for 2009 is $110,000, and therefore only those who make less than that amount are qualified for the full $1,000 tax credit for each child. For each $1,000 or a fraction thereof beyond the threshold income, $50 is deducted from the $1,000 tax credit.
For example, Dennis and Cherry have 2 children below 17 years of age. Their reported income was $105,000, which is below the $110,000 threshold level. This means that Dennis and Cherry can claim a total of $2,000 in tax credit for their children ($1,000 per child).
However, assuming that Dennis and Cherry have a reported income of $120,000 in their joint return, then they would have reduced child tax credit. Since $120,000 is $10,000 more than the threshold ($110,000), then there is a reduction of $50 for every $1,000. Therefore, $10,000 divided by $1,000 is 10, multiplied by $50 equals $500. So instead of a child tax credit of $2,000 like in the previous example, they can only get $1,500 in child tax credit.
Go to the Internal Revenue Service website, www.irs.gov and fill out the IRS Form 972 to know how much child tax credit you can get.