Some American families are not quite aware of the extent of the benefits they could enjoy in terms of the “tax breaks” intended to mitigate the cost of child care. They think they can only take advantage of the child care tax credit to help lessen or offset the costs of a full-time nanny working in their home. But that’s not the case.
And, for a family to be able to grasp and realize the benefits of a tax break, Tax Lien Seminars is providing here some of the more significant aspects of your children’s summer vacation activities that may lead to saving some taxes:
Indeed, if your kids went to day camp for the summer, you may be able to cover the costs using funds from a dependent-care “Flexible Spending Account” (FSA) or apply those expenses toward the child care tax credit. The same applies to other professional child care you enlisted to help you during the long summer break.
A dependent-care FSA is a popular employee benefit offered by 67 percent of U.S. employers
These accounts let you save pre-tax money to cover child care, including day care, babysitters, nannies and day camp, for your dependents who are younger than age 13. However, sleep-away camps do not qualify.
For 2018, the IRS-set contribution limit for FSAs is $5,000 per family for married couples filing jointly (but your employer may decide on a minimum for its particular plan, too). That means if you’re in the 30 percent tax bracket, using that full $5,000 from your FSA can save you $1,500.
Another tax break opportunity is the child and dependent care tax credit that allows you to take back 20 to 35 percent, depending on your income, of up to $3,000 worth of care costs for one child or $6,000 for multiple kids. And being a credit, it reduces your tax bill dollar for dollar, unlike a deduction, which only reduces your taxable income. So if you qualify for $500 of this credit, that’s a full $500 worth of savings. You and your spouse have to work or be full-time students to claim this credit.
It is also important to remember that you can claim a child tax credit for every kid you have who is younger than 17 years old. And this improved a lot for 2018, because of the Republican tax overhaul. The credit has doubled to $2,000 per child and allows up to $1,400 of that credit to be refundable. (Before this year, it was nonrefundable.) Deborah Meyer, financial planner and owner of financial planning firm WorthyNest in Saint Charles, Missouri, explains with this example: If you owe Uncle Sam $400 for 2018, and you have one child, earning you a $2,000 child tax credit, “your tax liability is reduced to zero, you receive a $1,000 refund, and you still have $600 of nonrefundable child tax credit to offset any 2019 tax liability,” she says.
Married couples filing jointly can claim the full credit as long as their “Adjusted Gross Income” (AGI) falls below $400,000, up from $110,000; other filers can nab the full credit with AGIs of less than $200,000, up from $75,000 in 2017.
In closing Tax Lien Seminars would like to advise families to be prepared with your paperwork related to day camps and childcare providers to take advantage of tax breaks. Remember, being well-prepared and organized can save you a considerable amount when the tax season rolls around next year.