The 2014 tax season is a few weeks away and taxpayers are getting ready to prepare their returns. Some tax breaks that families can take advantage of to lighten their tax liability are the Earned Income Tax Credit, child and dependent care credit, and child tax credit. These three credits can save considerable taxes.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit is only available to low and middle-income families. It is a refundable tax credit available to those earning less than $50,000. If the credit amount exceeds the amount of taxes owed, the IRS will issue the taxpayer a refund. Only single, head of household, qualifying widow(er) with dependent child or married filing jointly can claim this tax credit. Low and middle-income working individuals and families can use the EITC Assistant to find out if they qualify for EITC.
Child and Dependent Care Credit
This tax credit can be used by those who pay someone to care for their child, spouse or a dependent. There are various qualifying factors that need to be met to be able to use this tax credit, including:
- The care provider was hired to allow the taxpayer an opportunity to work or look for work.
- The child was 12 years of age or younger when the care was provided. A disabled adult is also eligible to qualify for this tax credit.
- The care provider(s) must be included in the return.
- The taxpayer’s filing status must be single, head of household, married filing jointly or qualifying widow(er) with a dependent child.
This credit can provide saving of up to 35% of the qualifying expenses on child and dependent care. The percentage varies according to the amount of adjusted gross income.
Child Tax Credit
This tax credit can be claimed along with child and dependent care credit. To benefit from this credit, your child needs to qualify certain qualifying restrictions, including:
- The child needs to be less than 17 years of age.
- The child lived with you for more than half a year.
- The child did not/could not provide for more than half for his/her support.
- The child did not file a joint return.
A qualifying child can be your biological child, stepchild, foster child, sibling, stepbrother, stepsister, grandchild, or niece or nephew. S/he must also be a U.S. citizen, a U.S. national or a U.S. resident alien to qualify for child tax credit.