Having a child or two in South Tampa is a joy that is unequaled by nothing else life has to offer. It is also an expense that is unmatched by almost anything else you will do in your lifetime. The IRS recognizes the both the importance of children and the expense and has special tax breaks that are available for South Tampa parents to help ease some of the financial burden.
The first way that the government helps South Tampa parents is with the dependent exemption. Exemptions work by reducing your taxable income, so the lower your income the less your tax bill is. There are two kinds of exemptions, personal and dependent. Personal exemptions are generally for yourself and your spouse if you are married.
Dependent exemptions are for qualifying children or relatives and for 2013 is $3,900 each. In order for a child to qualify as a dependent they must meet certain criteria:
- Relationship - Son, daughter, stepchild, foster child, grandchild, sibling or niece\nephew
- Age - Under 19 and younger than you or your spouse or a student under 24
- Disability - Permanently or totally disabled regardless of age.
Child Tax Credit
The child tax credit reduces your tax due dollar for dollar up to $1,000 per child. In order to use this credit the child must be under the age of 17 and a dependent of you or your spouse. It is important to note that in the event the child tax credit reduces your tax liability to zero and any remaining credit is refundable. Phase out of this credit begins at $75,000 for Single taxpayers and $110,000 for joint taxpayers.
Child and Dependent Care Credit
This may sound like the child care credit but it is a separate credit that not all parents are entitled to. The child and dependent care credit are available to South Tampa families of working parents who rely on some form of child care for children under the age of 13. There are very strict rules for qualifying caregivers such as they must have a valid tax id number. The credit is worth up to $3,000 for one child and $6,000 for two or more children.
Saving for College
College expenses have risen consistently every year for many decades and there is no end in site for escalating costs which makes saving for your child's education all the more vital. The IRS allows parents (and others) to contribute to a 529 College Saving Plan. The money invested in a 529 plan grows tax free and qualified withdrawals are also tax free.