Tax Day 2021: Financial benefits of having dependents
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Did your kids get a taste of the real world and decide that living off Mom and Dad was not so bad after all? Cheer up… you may still be able to claim them as dependents on your taxes.
In the past, dependents could save money on your taxes in two ways: through individual exemptions and the potential eligibility for certain tax credits. The Tax Cuts and Jobs Act (TCJA) removed the personal exemption from tax year 2018, but expanded the Child Tax Credit and kept the Dependent Care Credit in place, despite early talks of doing away with it. “The Dependent Care Credit can be very valuable. It was actually on the potential chopping block as far as the recent tax reform, but it survived,” reports Betterment Head of Tax Eric Bronnenkant. “Let’s say you have two kids, and let’s say your employer offers a dependent care account, you’re able to contribute up to $5,000 tax-free through your employer and get re
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May 12, 2021 9:00 AM MoneyTips
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Did your kids get a taste of the real world and decide that living off Mom and Dad was not so bad after all? Cheer up… you may still be able to claim them as dependents on your taxes.
In the past, dependents could save money on your taxes in two ways: through individual exemptions and the potential eligibility for certain tax credits. The Tax Cuts and Jobs Act (TCJA) removed the personal exemption from tax year 2018, but expanded the Child Tax Credit and kept the Dependent Care Credit in place, despite early talks of doing away with it. “The Dependent Care Credit can be very valuable. It was actually on the potential chopping block as far as the recent tax reform, but it survived,” reports Betterment Head of Tax Eric Bronnenkant. “Let’s say you have two kids, and let’s say your employer offers a dependent care account, you’re able to contribute up to $5,000 tax-free through your employer and get reimbu
Caring for an elderly relative can be rewarding, but incredibly difficult â as well as expensive. However, it may be possible to recoup some of the costs through income tax savings.
There are two general approaches to tax savings on elder care costs â taking medical deductions that can be itemized and claiming a dependent care credit that can be subtracted directly from the taxes you owe.
First, you must determine if your elderly relative qualifies as a dependent. Full details are listed in IRS Publication 501, Dependents, Standard Deduction, and Filing Information, but the primary criteria are that they must be a relative, you must be providing over half of their support, and their gross 2020 income must be less than $4,300.
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Taxes: Answers to FAQs about dependents, exemptions
Dawn Jorgenson, Digital Content Editor, Graham Media Group
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Even if we think we have some knowledge about anything tax-related, it can be a stressful time. And it’s certainly not a time when you want to play a guessing game.
The Internal Revenue Service gets many questions from many people, but these are the top frequently asked questions concerning dependents and exemptions:
Q: Is there an age limit on claiming my child as a dependent?
A: Your child must meet either the qualifying child test or the qualifying relative test in order for you to claim them as a dependent: