A few baby related Tax questions

[Golf4food]

We'll be having a baby this summer. I assume that we shouldn't change our with-holding rates until he is actually born?

Also, how much of a credit is a dependent these days? With a good daycare here running $265 per week, that's an extra $1,000+ per month we'll need for the little tyke (DW will be going back to work). Hopefully the lower taxes for us will make up a large chunk of that amount (but surely not $12,000 per year)?

 

[prncess674]

An exemption is an amount of money you can subtract from your Adjusted Gross Income, just for having dependents. Personal and dependent exemptions for yourself and qualifying family members reduce the amount of income on which you will be taxed. (in effect, these exemptions are the same as deductions).

In 2010, you can claim a $3,650 exemption for each qualifying child, which may include your child or stepchild, foster child, sibling or step-sibling, or descendants of any of these, such as your grandchild. To qualify for the exemption, the child must live with you more than half of the year and be under 19 at the end of 2010, or under 24 and a full-time student for the year (defined as attending school for at least part of five calendar months during the year).

If you have children who are under age 17 at of the end of 2010, you can get a tax credit of up to $1,000 per child on your tax return. A tax credit reduces your tax bill dollar-for-dollar, so three qualifying children, for example, can cut what you owe Uncle Sam by $3,000.

It is important to understand that the credit does not affect the exemption deductions you take for dependent children—worth $3,650 each in 2010. The child tax credit is in addition to those deductions.

 

[Brer Shay]

The child tax credit is $1000. Remember that's a credit to the tax you owe of $1000, not just that amount off your income.

In terms of daycare cost, the Dependent Care Expense (form 2441) calculates your deduction amount based on your income. DH works full-time, I'm part-time and we're only able to deduct 20% of our costs. Again, it's a tax credit, not an income offset, so that's pretty good.

Last, you can claim a $3,650 income offset for each child (at least in 2010).

In terms of when you change your withholding, that's up to you. Everyone has their own opinions about large vs small tax refunds.

 

[prncess674]

If you used TurboTax for your 2010 return then do a second dummy return estimating your income in 2011 and listing a dependent. This will give you a decent estimate of what your 2011 should be.

 

[soonerfan2008]

The child tax credit is $1000. Remember that's a credit to the tax you owe of $1000, not just that amount off your income.

In terms of daycare cost, the Dependent Care Expense (form 2441) calculates your deduction amount based on your income. DH works full-time, I'm part-time and we're only able to deduct 20% of our costs. Again, it's a tax credit, not an income offset, so that's pretty good.

Last, you can claim a $3,650 income offset for each child (at least in 2010).

In terms of when you change your withholding, that's up to you. Everyone has their own opinions about large vs small tax refunds.

There is also a cap on the amount of Dependent Care Expenses you can claim. I think it is $3000 per child, with a max of $6000 for all children. And again, you only get to deduct a percentage of that amount from your income. Based on your income, the percentage ranges from .20 to .35 (I think).

 

[ccgirl]

Depending on how much your and your wife make the child may not bring a tax benefit. We are unable to get the dependent care. We have 2 children but each one of us only claim one. We still get back very little. If we actually claimed the children we would have to pay. Take a PP suggestion and do the dummy return including the child in order to have a better idea.

 

[amoggio816]

Honestly, if you call a local HR Block person, they have tax books. If you say "my husband and I make a total of 56,000, annually, about how much would we get for the EIC?" they can give you a rough estimate from their book. I think if you make 109,000 a year...you get like $3. lol

 

[soonerfan2008]

Honestly, if you call a local HR Block person, they have tax books. If you say "my husband and I make a total of 56,000, annually, about how much would we get for the EIC?" they can give you a rough estimate from their book. I think if you make 109,000 a year...you get like $3. lol

You don't get the EIC if you make over $48,362 (and that is if you are married, filing jointly with THREE kids). Really, there are not that many tax breaks to having a child unless you are near the poverty line.

 

[ccgirl]

Honestly, if you call a local HR Block person, they have tax books. If you say "my husband and I make a total of 56,000, annually, about how much would we get for the EIC?" they can give you a rough estimate from their book. I think if you make 109,000 a year...you get like $3. lol

NOt sure where EIC is coming in. The OP was asking about the tax credits for having a child. And, if you make 6 figures you are not going to qualify for EIC no matter how many children you have.

You don't get the EIC if you make over $48,362 (and that is if you are married, filing jointly with THREE kids). Really, there are not that many tax breaks to having a child unless you are near the poverty line.

Correct. I remember being surprised when we had our first child that we dind't get a ton of money back. I was delusional and thought you gt back so much money when you had children. Thank goodness we don't actually claim them on our withholdings. The gov't takes enough money; I don't want to have to pay more at the end of the year.

 

[twinboysmom]

OP, we had twins in 2009. I would advise not changing any exemptions on your withholding until after you do your taxes for 2011. We made a good amount of money that year and I can't say they helped us much. We don't do daycare so I don't have that deduction but we did have 2 new tax deductions. If you are in the lower income tax brackets it will help you more, middle to upper, not as much. Congrats on your new miracle!

 

[sherry7]

Another thing to take into account is if your wife will be taking any unpaid time off work, thereby reducing your yearly income. For example: after the paid portion of my maternity leave, I took off the remaining 6 months of the year, which were unpaid. This decreased our household income a significant amount, and dropped us into a lower tax bracket. As a result, we got a much larger refund check this year.

 

[dizziedupbaby0127]

First off typically Married Filing Joint, is the best for getting the most credits. That would allow you your standard deduction for 11,400 assuming you don't itemize or more if you do itemize.

With the baby you would get $3650x3 for personal exemptions (yourself, wife, baby)

So both the 11400 and 10950 would be subtracted off your income.

Then you would get upto $1000 for the baby, to reduce your tax libility. (if you owe say $3000 in taxes to the irs, with the Child Tax Credit you would only owe $2000) Part of the child tax credit IS refundable, so if you only owe say $200, you might be able to get a portion back of the $1000 as a credit.

The child care credit is the $3000max per child.

Also each state is different, the state you live in MAY have a child tax credit also. (NY where I am, has a Child Tax credit, but only for Ages 3-17, apparently 1 & 2 year olds don't cost ENOUGH)


I hope that all makes senses! Goodluck