You may have heard that there are no longer tax exemptions for minors in 2018. That is true and if it is your year to take the children as a tax exemption, you will find that exemption is gone. However, all is not lost!
Instead of a tax exemption for children, the tax exemption is for families, $12,000/year for singles, $18,000 for head of household (single and claiming a dependent) and $24,000 for married folks filing jointly. If you are now single, the child that you could have claimed as a tax exemption may allow you to still reduce your bottom line.
If it is your year to take the child for an exemption to your federal taxes, this may allow you several additional benefits. If you are single, a child may qualify you to file as Head of Household which would reduce that income that you are taxed on by $6000.
The other benefits that may apply to you are the Child Tax Credit (for kids under 17 years of age), Dependent Care Credit and the Earned Income Credit. Why is a “Credit” so good? A “Credit” actually is subtracted from the amount of taxes that you owe, not just reducing the income that you pay taxes on.
How much are we talking about with these credits?
The Child Tax Credit is for $2000/child and can doesn’t begin to phase out until your income is $200,000 (single) or $400,000 (married, filing jointly). So you pay $2000 less in taxes for each child you claim!
The Dependent Care Credit is only if you have child care expenses paid by you. Remember, you may still get this Credit if you pay for the child care through your child support. Check with your accountant and be sure to provide your child support worksheet which was filed with the court. This credit does have lots of requirements, but if you worked during the year, you may well qualify. It can range from $600-$1050 per child for up to two children. You may get this as a refund, even if you do not have to pay any taxes in 2018.
The Earned Income Tax Credit phases out at around $15,000 if you are single with no children. However, if you claim your child, that Credit doesn’t phase out until incomes of almost $40,000 or $45,000 if you have two kids. So, if you make $30,000 in income, you would not qualify as a single person, but if you claim a child, you may be eligible. The Earned Income Tax Credit maximum for families with one child is $3461 and two children is $6431. You get this Credit even if you did not pay taxes for 2018.
It is important that you either discuss these benefits with an accountant, your tax preparer or the IRS. While a child who would qualify as an exemption in the past was pretty straight forward, it has become much more complicated. Your child meet those qualifications for you to qualify for these benefits.