Income tax Benefits

How do you work out your dependents’ income tax benefits?

Supporting dependents, such as children or other relatives, can have a financial impact. Having dependents, on the other hand, may enable you to take advantage of some tax benefits, thereby increasing your tax refunds.

If you have dependents, there are a few things you should know about tax benefits.

You’d be spending tens of thousands of dollars on food, housing, and school for your children, as well as taking care of other dependents. The Internal Revenue Service (IRS) can assist you with tax savings for both related and unrelated dependents. These tax credits and deductions might help you save a significant amount of money in terms of taxes.

Your children are eligible for a variety of tax benefits and deductions.

Although it is undeniable that raising children is costly, you should be aware of the tax credits and deductions available to you if you have children. You’d be eligible for benefits like the Child Tax Credit, the Child and Dependent Care Credit, the Earned Income Tax Credit, and various Education Credits.

Child tax credit

Social Security Numbers

If you have recently become a parent, you must guarantee that you have applied for your newborn baby’s Social Security Number. You will be able to quickly claim tax credits and deductions once you obtain this Social Security Number. Furthermore, if you have any other dependent family members or relatives, they must have their own Social Security Number in order to be eligible for tax benefits.

Relatives and non-relatives can take advantage of tax credits and deductions

Tax credits and deductions can be extended to relatives that do not need to live with you, such as your parents, grandparents, grandkids, or other blood relations. If you are taking advantage of any tax credits or deductions for non-relatives, such as a boyfriend or girlfriend, they must have lived with you for the entire year.

Let’s take a look at some of the most important tax credits for your children and other dependents.

Child Tax Credit

Your tax liability would be reduced dollar for dollar if you took advantage of the Child Tax Credit. If you had a dependent kid under the age of 17, you could get a $1000 Child Tax Credit earlier this year. With the passage of tax reform, the Kid Tax Credit has been enhanced to $2000 for a dependent child under the age of 17. If you are submitting your tax return as a single, the income threshold for the Child Tax Credit is $200,000, however if you are married and filing jointly, the threshold is $400,000.

Credit for Children and Dependents

If your dependent kid is under the age of 13 and you are working or seeking for work, you may be eligible for Child and Dependent Care Credit. If the dependent child is disabled, there is no age limit. Depending on your income, you may be eligible for a credit ranging from 20% to 35% of your daycare expenses. This credit would apply to expenses incurred in Nursery and Kindergarten schools, daycare, and after-school programmers.

Other Dependent Credit

You may still be eligible for tax credits if you are supporting a relative or your dependent child is over the age of 17. The Other Dependent Credit, which is worth up to $500 for each qualifying individual, is this credit. However, if you file your taxes as a single with an AGI of more than $200,000, or if you file jointly with an AGI of more than $400,000, this benefit will phase out.

Benefits of Income Tax

Earned Income Tax Credit (EITC)

The Earned Income Tax Credit is mostly beneficial to self-employed Americans with income below a particular threshold. The amount of credit you can get from the Earned Income Tax Credit is mostly determined by your filing status, income level, and the number of qualified children you have, among other factors. The EITC is refundable, so if your credit exceeds your tax burden, you might get a refund quickly. For the year 2020, you can earn EITC ranging from a maximum of $6660 if you have three or more qualified children to $538 if you don’t have any.