Having a baby is such a wonderful blessing, but along with the tremendous amount of joy comes a large amount of new expenses. The federal government offers a number of tax breaks to help parents save money on their tax bill.
The Dependent Exemption
For 2016, you can claim a $4,050 exemption by adding your child as a dependent. This will reduce the amount of income which you will be taxed on. This is not a prorated amount, meaning that you qualify for the entire amount no matter what time of the year the child was born. For example, a married couple with one child would qualify for three exemptions, even if that baby was born in December of the year.
There is a phase-out on the dependent exemption that applies once your adjusted gross income exceeds $259,400 for single filers, $285,350 for head of household, $155,650 for married filing separately, and $311,300 for married couples filing jointly in 2016.
The Child Tax Credit
The child tax credit provides a credit of $1,000. A credit is different than a deduction in that it reduces the amount of the tax bill dollar for dollar compared to a deduction that reduces the amount of income you are being taxed on.
There is a phase-out for the child tax credit which starts when your income is above $110,000 for married couples filing jointly, $75,000 for single filers and head of household, or $55,000 for married filing separately.
The Child Care Credit
The dollar limit on the amount of the expenses you can use to figure the credit is $3,000 for the care of one child under age thirteen or $6,000 for two or more children under age thirteen. The amount of your credit is between 20-35 percent of your allowable expenses. There is not a complete phase-out for this credit, but the credit decreases as the amount of income increases. Families with an adjusted gross income of $43,000 or more will only be able to take 20% of allowable expenses.
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