Prepare now for potential income tax hits.
As your children grow older, you can easily be surprised by a larger tax bill. To help ease the possible burden, consider these tax implications as your dependent children age.
In 2021, the Child Tax Credit is $3,600 for children under the age of 6. This is an extra $600 that will go away after your child ages out of the benefit. Even more important this benefit is currently scheduled to disappear after 2021.
If your children are in daycare and you offset some of this cost with the Dependent Care Credit you will lose this benefit when they reach age 13. The impact: a 50% credit against up to $16,000 in qualified daycare expenses in 2021. The good news here is that your children may no longer need the care as they get older.
While children under the age of 6 get an extra $600, after the age of 17 the balance of this credit goes away. This could amount to a tax bill increase of $2,000 to $3,000 per child, depending on your income. But stay tuned, Congress is actively looking to change this tax benefit.
The EITC pays a potential credit worth up to $6,728 for people with three or more qualifying children. Children stop being counted when they turn 19, or when they are 24 if they are full-time students.
Many of the child-related credits and deductions are meant to offset the cost of raising a child. Prepare now for the inevitable change in your tax situation that occurs when they go away. Here are some ideas:
Empowering business owners and individuals in South Jersey and Philadelphia to feel confident through proactive accounting and advisory solutions.
