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4 tax breaks for parents on the chopping block
http://finance.yahoo.com/news/4-tax-breaks-parents-chopping-094600419.html
Many low-income parents could see their tax bills jump by thousands of dollars next year if nothing is done to stop a series of tax breaks from expiring January 1.
Unless Congress takes action before the end of the year, four important credits for families -- The Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Credit and the American Opportunity Credit -- will revert back to previous levels.
If this happens, many families will be worse off by hundreds -- or even thousands -- of dollars, said Roberton Williams, a senior fellow at the Tax Policy Center.
"If you have what it takes to qualify for these particular benefits, you will get hit," said Williams.
Some families will take a hit on several fronts if they qualify for more than one tax break. A low-income couple with three kids, for example, will lose as much as $1,500 from expiring provisions of the Child Tax Credit. If their income is low enough, they could also see a smaller refund from the Earned Income Tax Credit, and benefits from the Child and Dependent Care Credit could be reduced as well.
The upcoming presidential election has left the fate of these tax breaks uncertain. Democrats and Republicans in Congress continue to butt heads about which tax cuts should be extended, and there's virtually no chance they will agree on a specific plan before the November election, Williams said.
Even if an agreement is reached by the end of the year -- which is far from a sure thing, either -- next year's tax policy will ultimately depend on who takes over the Oval Office.
1. Child Tax Credit
The Child Tax Credit allows lower-income parents to claim as much as $1,000 for each child under age 17.
Under George W. Bush's Tax Relief Reconciliation Act, the maximum value of the credit was doubled to $1,000. Obama's 2010 Tax Relief Act then extended the credit until the end of this year and made it so families whose income tax is lower than the credit's value could receive more of the credit in a cash refund once any tax liability is zeroed out. The credit phases out for married couples whose income is $110,000 or for single people with income of $75,000 or more.
Should the Bush and Obama provisions expire, the tax break will drop back down to a maximum of $500 and only working families with three or more children will be eligible to receive cash refunds.
A couple with two children could therefore end up paying an added $1,000 in taxes next year. Since they have fewer than three children, they will no longer be eligible for a cash refund. And if they don't owe any taxes, they can't apply the credit either, said Williams.
2. Child and Dependent Care Tax Credit
This credit allows working parents -- or those looking for work -- to report up to $3,000 of child care-related expenses per child, up to a maximum of $6,000 per family. Families can receive up to 35% of their expenses as a credit, with lower-income families receiving the highest percentages.
Prior to Bush's tax cuts, parents could only report up to $2,400 per child or $4,800 per family, and families received a maximum credit of just 30% of expenses.
Should the tax breaks expire at the end of the year, the credit will revert back to these lower levels. That would mean the biggest credit that parents with two children could receive next year would be $1,440, compared to a $2,100 credit under the current tax code.
3. Earned Income Tax Credit
The government estimates that the Earned Income Tax Credit lifts millions of Americans out of poverty each year by allowing them to hold onto more of their earnings.
The more children you have, the more money you receive. For example, married couples filing jointly who have income below $50,270 and three or more qualifying children can receive up to $5,891 this year. If a married couple doesn't have any qualifying children but has income below $19,190, the maximum credit drops to $475. (Related: Don't overlook this $6,000 tax credit)
Since 2001, the income thresholds at which the credit begins phasing out for married couples were raised by about $5,000 by the Bush and Obama tax plans. But at the end of this year, phaseout thresholds for married couples are scheduled to revert back to the lower income levels that apply for single filers.
Obama also raised the maximum credit for families with three or more children from 40% to 45% of a household's earnings (up to a maximum amount), and that rate is slated to go back to 40% in 2013. This decrease could amount to a loss of more than $600 for families with at least three children who had previously claimed this credit, said Williams.
4. American Opportunity Tax Credit
Introduced as part of Obama's stimulus plan, the American Opportunity Tax Credit aims to help lower-income families pay for college. It replaced the Hope Credit and allows qualifying families to claim up to $2,500 each year for four years.
Obama made the credit 40% refundable, meaning a family that qualifies for the full $2,500 can receive $1,000 of the credit in cash and the rest must be applied toward their tax liability. That refundable $1,000 is especially important for low-income families, since they often don't have big enough tax bills to apply a non-refundable credit. Often, the refundable amount is the only portion they receive.
But the American Opportunity Tax Credit is scheduled to disappear at the end of this year and revert back to the Hope Credit. At that point, the maximum credit will drop to $1,800. Also, families will only be able to claim the credit for two years and it will no longer be refundable.
"Because the Hope Credit is not at all refundable, that's potentially $1,000 dollars out of the pocket of a college student, and when you're trying to go to college, $1,000 is a lot of money," said Williams.
Many low-income parents could see their tax bills jump by thousands of dollars next year if nothing is done to stop a series of tax breaks from expiring January 1.
Unless Congress takes action before the end of the year, four important credits for families -- The Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Credit and the American Opportunity Credit -- will revert back to previous levels.
If this happens, many families will be worse off by hundreds -- or even thousands -- of dollars, said Roberton Williams, a senior fellow at the Tax Policy Center.
"If you have what it takes to qualify for these particular benefits, you will get hit," said Williams.
Some families will take a hit on several fronts if they qualify for more than one tax break. A low-income couple with three kids, for example, will lose as much as $1,500 from expiring provisions of the Child Tax Credit. If their income is low enough, they could also see a smaller refund from the Earned Income Tax Credit, and benefits from the Child and Dependent Care Credit could be reduced as well.
The upcoming presidential election has left the fate of these tax breaks uncertain. Democrats and Republicans in Congress continue to butt heads about which tax cuts should be extended, and there's virtually no chance they will agree on a specific plan before the November election, Williams said.
Even if an agreement is reached by the end of the year -- which is far from a sure thing, either -- next year's tax policy will ultimately depend on who takes over the Oval Office.
1. Child Tax Credit
The Child Tax Credit allows lower-income parents to claim as much as $1,000 for each child under age 17.
Under George W. Bush's Tax Relief Reconciliation Act, the maximum value of the credit was doubled to $1,000. Obama's 2010 Tax Relief Act then extended the credit until the end of this year and made it so families whose income tax is lower than the credit's value could receive more of the credit in a cash refund once any tax liability is zeroed out. The credit phases out for married couples whose income is $110,000 or for single people with income of $75,000 or more.
Should the Bush and Obama provisions expire, the tax break will drop back down to a maximum of $500 and only working families with three or more children will be eligible to receive cash refunds.
A couple with two children could therefore end up paying an added $1,000 in taxes next year. Since they have fewer than three children, they will no longer be eligible for a cash refund. And if they don't owe any taxes, they can't apply the credit either, said Williams.
2. Child and Dependent Care Tax Credit
This credit allows working parents -- or those looking for work -- to report up to $3,000 of child care-related expenses per child, up to a maximum of $6,000 per family. Families can receive up to 35% of their expenses as a credit, with lower-income families receiving the highest percentages.
Prior to Bush's tax cuts, parents could only report up to $2,400 per child or $4,800 per family, and families received a maximum credit of just 30% of expenses.
Should the tax breaks expire at the end of the year, the credit will revert back to these lower levels. That would mean the biggest credit that parents with two children could receive next year would be $1,440, compared to a $2,100 credit under the current tax code.
3. Earned Income Tax Credit
The government estimates that the Earned Income Tax Credit lifts millions of Americans out of poverty each year by allowing them to hold onto more of their earnings.
The more children you have, the more money you receive. For example, married couples filing jointly who have income below $50,270 and three or more qualifying children can receive up to $5,891 this year. If a married couple doesn't have any qualifying children but has income below $19,190, the maximum credit drops to $475. (Related: Don't overlook this $6,000 tax credit)
Since 2001, the income thresholds at which the credit begins phasing out for married couples were raised by about $5,000 by the Bush and Obama tax plans. But at the end of this year, phaseout thresholds for married couples are scheduled to revert back to the lower income levels that apply for single filers.
Obama also raised the maximum credit for families with three or more children from 40% to 45% of a household's earnings (up to a maximum amount), and that rate is slated to go back to 40% in 2013. This decrease could amount to a loss of more than $600 for families with at least three children who had previously claimed this credit, said Williams.
4. American Opportunity Tax Credit
Introduced as part of Obama's stimulus plan, the American Opportunity Tax Credit aims to help lower-income families pay for college. It replaced the Hope Credit and allows qualifying families to claim up to $2,500 each year for four years.
Obama made the credit 40% refundable, meaning a family that qualifies for the full $2,500 can receive $1,000 of the credit in cash and the rest must be applied toward their tax liability. That refundable $1,000 is especially important for low-income families, since they often don't have big enough tax bills to apply a non-refundable credit. Often, the refundable amount is the only portion they receive.
But the American Opportunity Tax Credit is scheduled to disappear at the end of this year and revert back to the Hope Credit. At that point, the maximum credit will drop to $1,800. Also, families will only be able to claim the credit for two years and it will no longer be refundable.
"Because the Hope Credit is not at all refundable, that's potentially $1,000 dollars out of the pocket of a college student, and when you're trying to go to college, $1,000 is a lot of money," said Williams.
Dont fret, they will kick the freakin can down the road, I promise! Once they figure out no one is gonna blink.
Personally, I think it might be the best thing to happen to just let the cuts go thru. That would be a good dent in the deficit. But it would kill the average household.
Personally, I think it might be the best thing to happen to just let the cuts go thru. That would be a good dent in the deficit. But it would kill the average household.
I've said it before and I'll say it again. This is not about us... this is about machines, both republican and democrat, doing what they can to hold us hostage.
We've got a Senator who actually took a pay cut to get into politics... for all of the right reasons. This whole state is compromised of middle class and lower class citizens. Even this Senator of whom I am speaking of, has lost track. Typically, that doesn't happen here. Whether one be a democrat or a republican in this state... their focus has always been on the people. It's not that way now... Our last Governor was a democrat and did a killer job. He loaded the coffers with money... (he did neglect a few things that needed some money thrown at them). Our current governor is a Republican who is very like minded and seemed to be cut from a different quilt. Kind of like the old republicans.... Yet to see what will happen....
But politics ain't what it used to be. The divide between the parties, even in a tiny state like ours is ever present. The national spotlight has superceded what happens at home and it will and is taking its toll.
We've got a Senator who actually took a pay cut to get into politics... for all of the right reasons. This whole state is compromised of middle class and lower class citizens. Even this Senator of whom I am speaking of, has lost track. Typically, that doesn't happen here. Whether one be a democrat or a republican in this state... their focus has always been on the people. It's not that way now... Our last Governor was a democrat and did a killer job. He loaded the coffers with money... (he did neglect a few things that needed some money thrown at them). Our current governor is a Republican who is very like minded and seemed to be cut from a different quilt. Kind of like the old republicans.... Yet to see what will happen....
But politics ain't what it used to be. The divide between the parties, even in a tiny state like ours is ever present. The national spotlight has superceded what happens at home and it will and is taking its toll.
It is hard to believe that they'd let these expire. This bites in the butt all those both parties say they want to help.
For the record, I wrote our senator and gave him a 'talking to' about working with people. He's a Republican and I wrote that I didn't vote for him to be stubborn but to get something productive done. That I'm fine with compromise. I'm sure he read my letter and took it to heart. :>) I wrote a congressman too. Said the same thing. I know I have a lot of pull with these guys . . .
For the record, I wrote our senator and gave him a 'talking to' about working with people. He's a Republican and I wrote that I didn't vote for him to be stubborn but to get something productive done. That I'm fine with compromise. I'm sure he read my letter and took it to heart. :>) I wrote a congressman too. Said the same thing. I know I have a lot of pull with these guys . . .
This will really effect families, people raising children.
The only thing I can say about this is, they all agreed on these automatic cuts they are crying about in the event they could not come up with a compromise on lowering the debt. They didnt, the cuts will take effect unless they do, and they have only themselves to blame, and as usual the voters get screwed while they play games with our lives. That includes the military cuts everyone is crying about. They all agreed!!!
I'd hate to lose these too!!
My wife and I almost make the top end of that "low income" bracket. We both work our tails off, working anything extra we can find.... All of this so we don't have to try to choose which med is or is not important, which bill gets paid on time, etc...
Geez I never knew 110k and 75k was considered low income.....Jason and I benefit from these deductions and honestly, I don't think we should lose them. We have children, Jason works his A$$ off and makes about 90k a yr (but according to this article we are low income..Funny we don't get any government assistance). He Provides for his family all year round with good old fashion hard work and dedication, no handouts so YES we should get these deductions...This is exactly why I'm voting Obama/Biden..
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