This is our second article in the Bush Tax Changes series. If you would like to learn more about the tax changes that may be put into place in 2013 and how they apply to you be sure to keep reading our blog and following along online.
The Bush Tax Laws have allowed parents to received expanded tax credits to help with the expense of raising a child. When/if the Bush tax cuts end as of December 31 2012 this is what you can expect:
The current tax rates:
For the Child Tax Credit the current tax credit is $1000 for qualifying dependents under age 17. The credit is reduced once the parent’s income is above $110000 (for married taxpayers) and $75000 for single taxpayers.
For the Dependent Care Credit the current tax credit is $3000 to $6000 for two or more qualifying dependents for qualifying expenses paid by the parent or legal guardian while working. In other words the credit is right around 35% of the amount paid to a qualifying person or organization up to the $3000 / $6000 limit.
The resulting change is that the $1000 child tax credit will revert to the original $500.
The resulting change for the $3000 to $6000 dependent care credit will revert to the original $2400 to $4800. In other words the 35% tax credit will be reduced to 30%.
How you can plan for the change:
For the Child Tax Credit taxpayers that qualify for this credit should adjust their withholdings to consider the reduction of $1000 to the $500.
- For the Dependent Care Credit taxpayers that qualify for this credit should adjust their withholdings to account for the reduction.
The end of the Bush Tax Cuts forces high-earners to pay more taxes but it also cuts into the tax relief given to families with children.