I have a question about the Childcare Tax Credit as well as any other deductions/ credits that you get for having a dependent. How does it all work? Any accountants or STM's out there that can give me any insight at all? Thanks!!
Basically, I initially thought that you get back a pretty good size credit for childcare ... but the more that I try to look it up online, it says that you take a max of $3000 and then the credit is based on your income bracket (so for us 20% of that which would be us getting back $600 only) ... is that true or is there more to it? Also, do you get any other type of deductions or credits for having a dependent (regardless of them being in childcare)? I know it's a broad question, but I just am interested in any info whatsoever at this point.
I found this article to be really helpful when planning for daycare. It talks about the difference between a flexible spending account (FSA) for childcare (which is tax free) and the childcare tax credit. You can't do both, but it's interesting to see the pro's and con's of each. It really depends on how much money your family makes as to which option is best. And of course either you or your husband has to work for a company that offers a FSA in order to be eligible.
I work in a CPA office, and I'm a payroll accountant, so I can help a little bit. You are correct with the child care deductions calculation.
Here is why you will probably see more back on your return if you haven't corrected your withholding for your job:
When you start a new job, you fill out a W-4 form. This form is held onto indefinitely by your employer (or their payroll company), and it states your legal name, soc sec number, address, and what you want to claim (i.e. Single with 0 exemptions or Married with 2 exemptions...you get the idea).
Often times people fill these out regardless of what their possible exemptions are as Single - 0 because they don't like to pay in at the end of the year, or they like to get a big refund. (Personally, I think big refunds are stupid. Why would you want to loan your money to the government interest free, so they can give it back to you in a lump sum a year later? Save your money!!)
When you have a child, the government has an equation they use to calculate how much a parent minimally needs to spend in order for their child to survive. This is deducted from your income as a necessary expense, so it off sets your income.
Here's how you get a bigger "refund:" (again, this is and always has been YOUR MONEY, but many people don't realize what's done with what's deducted from your pay checks)
These are totally hypothetical numbers, and I'm not taking into account any additional deductions people can use. Let's say you make $100,000.00 a year and you. You had 30,000 taken out for federal taxes from your paycheck because that's what you owed last year. You have a child and the government says it costs a minimum of $5000.00 a year to keep a child alive. You will get that $5000.00 extra back because the IRS is recognizing you are keeping more than you and your DH alive with the same amount of money. You get this money back because they recognize you spent the money in other areas of the economy they can collect taxes on (i.e. medical bills, taxable food items/groceries, travel/fuel...)
As I stated earlier, this has always been your money, so the wiser thing to do would be to go to the IRS website and use their tools to calculate what your estimated taxes would be and adjust your W-4 accordingly, so they extra money you do have can be spent on the dependent, or put into savings or retirement and begin earning interest.
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Re: Question about Taxes and Dependents/ Childcare
Violet Mae born 1/15/13
https://www.marketwatch.com/story/child-care-tax-breaks-for-working-parents-2013-03-06
$600 sounds about right
I was thinking more too. sigh.
Violet Mae born 1/15/13
I found this article to be really helpful when planning for daycare. It talks about the difference between a flexible spending account (FSA) for childcare (which is tax free) and the childcare tax credit. You can't do both, but it's interesting to see the pro's and con's of each. It really depends on how much money your family makes as to which option is best. And of course either you or your husband has to work for a company that offers a FSA in order to be eligible.
https://www.babycenter.com/0_tax-time-flexible-spending-plans-versus-the-childcare-credit_3651253.bc
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I work in a CPA office, and I'm a payroll accountant, so I can help a little bit. You are correct with the child care deductions calculation.
Here is why you will probably see more back on your return if you haven't corrected your withholding for your job:
When you start a new job, you fill out a W-4 form. This form is held onto indefinitely by your employer (or their payroll company), and it states your legal name, soc sec number, address, and what you want to claim (i.e. Single with 0 exemptions or Married with 2 exemptions...you get the idea).
Often times people fill these out regardless of what their possible exemptions are as Single - 0 because they don't like to pay in at the end of the year, or they like to get a big refund. (Personally, I think big refunds are stupid. Why would you want to loan your money to the government interest free, so they can give it back to you in a lump sum a year later? Save your money!!)
When you have a child, the government has an equation they use to calculate how much a parent minimally needs to spend in order for their child to survive. This is deducted from your income as a necessary expense, so it off sets your income.
Here's how you get a bigger "refund:" (again, this is and always has been YOUR MONEY, but many people don't realize what's done with what's deducted from your pay checks)
These are totally hypothetical numbers, and I'm not taking into account any additional deductions people can use. Let's say you make $100,000.00 a year and you. You had 30,000 taken out for federal taxes from your paycheck because that's what you owed last year. You have a child and the government says it costs a minimum of $5000.00 a year to keep a child alive. You will get that $5000.00 extra back because the IRS is recognizing you are keeping more than you and your DH alive with the same amount of money. You get this money back because they recognize you spent the money in other areas of the economy they can collect taxes on (i.e. medical bills, taxable food items/groceries, travel/fuel...)
As I stated earlier, this has always been your money, so the wiser thing to do would be to go to the IRS website and use their tools to calculate what your estimated taxes would be and adjust your W-4 accordingly, so they extra money you do have can be spent on the dependent, or put into savings or retirement and begin earning interest.