Pennies From Heaven

Katherine Whitehorn said, “The easiest way for your children to learn about money is for you not to have any.” 

We don’t entirely agree with this statement, and neither does the IRS!  As a matter of fact, the IRS has implemented a few child-based credits to allow you to keep MORE of your money!  Here are a few of them:

The Child-Tax Credit – This is a non-refundable tax credit, which means the credit can’t reduce the amount of tax owed to less than zero.  You can claim a maximum of $1,000 for each of your qualifying children.  A qualifying child is defined as your child (son, daughter, step-child, foster child, sister, brother or descendant of any of these), who is under age 17 at the end of the year, did not provide more than ½ of their own support and was a US citizen, national or resident alien.  If your income exceeds $110,000 for Married Filing Jointly ($55,000 for Married Filing Separately; $75,000 for Single, Head of Household or Qualifying Widow(er)), then your credit may be phased-out.

Additional Child Tax Credit.  Unlike the Child Tax Credit, this is a refundable tax credit. Typically, a tax credit only reduces your tax liability to zero, but with a refundable credit, you get to claim the amount that exceeds the tax liability as a payment.  When completing your taxes you will first reduce your tax liability to zero using the child tax credit. If you have additional child tax credits that exceed the tax liability you may be eligible to claim a refundable additional child tax credit. 

Child care credit.  If you paid someone to care for a qualifying individual so you (and your spouse if you are married) could work or look for work, you may be able to claim a credit for your child and dependent care expenses.  There is a maximum dollar limit of dependent care expenses you can use for this credit.  The amount of the maximum dollar limit depends on the taxable year and the number of qualifying children.  These dollar limits must be reduced by the amount of any dependent care benefits provided by your employer that you exclude from your income.   

Earned Income Tax Credit.  The Earned Income Credit (EIC) is a refundable tax credit.  The refund amount gets larger if you are claiming children.  According to IRS Tax Topic 601, EITC “…is a refundable credit for workers who meet certain requirements and file a tax return. Persons with or without a qualifying child may claim the EIC. The maximum credit you can get will depend on your filing status and whether you have no qualifying children, one qualifying child, or more than one qualifying child. Additionally, the maximum credit possible can change each year due to inflationary adjustments.”  The basic rules for claiming EITC:

1. AGE:  You must be over 25 and under 65 years of age
2. INCOME: You must have EARNED income (wages, self-employment).  Your AGI must be under: $37,783 ($39,793 if MFJ) with more than one qualifying child; $33,241 ($35,241 for married filing jointly) if you have one qualifying child; or $12,590 ($14,590 for married filing jointly) if you do not have a qualifying child.  Investment income must be $2,900 or less.
3. FILING STATUS:  You cannot file as Married Filing Separately; you must be a US citizen or resident alien; you cannot be some else’s dependent or qualifying child; you (and your child if claiming a qualifying child for the credit) must have a valid Social Security.
   

The IRS has a handy tool on their website that allows you to determine whether you qualify for EITC.  To access the tool, click here.

College tuition.  If your income is too high to qualify for the Hope or Lifetime Learning credit, but you still paid college tuition in 2007 for yourself, spouse or a dependent…  you may still qualify to deduct up to $4,000!  You can claim this deduction whether or not you itemize.

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