I Have 2 Dependents…How Much Money Can I Expect On My Return?
For most of us, claiming a dependent on our annual tax return is fairly simple. Generally speaking, claiming a dependent means that we have a qualifying child that is related to you, lives with you, is under the age of 19 (or 24 if a student), and that you support financially. So, how much can you expect to see on your return for one dependent, or for two?
The deduction for dependents can help you out a lot. Quite simply, claiming one or more dependents can lower your overall tax bill. This means more money left in your pocket and less paid to the Internal Revenue Service (IRS). Each year, the IRS sets the amount that you can deduct for a dependent. For 2016, you could claim a dependent exemption deduction of $4,050 for each child and other dependent. You should be aware that this does not mean that you will receive a refund of $4,050 for each dependent; this amount actually reduces the portion of your income that is subject to federal tax. If you are in the 15% bracket this may save you $607.50 for 2016, and at 25%, you can expect to save $1,1012.50. In summary, the higher your tax bracket, the more each dependency exemption saves you.
These same rules remained in effect for the 2017 tax year as well, which is good news if you happen to be saddled with back taxes. However, they changed somewhat after that. While $4,050 was the value again in 2017, exemptions were replaced the next year by an increased standard deduction coupled with a larger child tax credit and a new dependent credit.
See below for some more details about how these new credits work.
Additional Tax Benefits for Those with Kids
There are additional tax benefits that you might qualify for if you claim two dependents:
Child Tax Credit
The child tax credit might be even more beneficial to you (financially speaking) than the deduction for your dependents, because a tax credit actually reduces your taxes dollar for dollar.Under the Tax Cuts & Jobs Act (TCJA) the new tax credit rules effect the way the child credit works in 2018 and 2019. While the age cutoff stayed the same at 17, this credit could now be worth up to $2,000 while it used to be worth only half that.
Child and Dependent Care Credit
The IRS is sympathetic to parents who must work and pay child care, so they offer a break to those parents who pay childcare for their kids who are younger than 13 years old. This credit is based on your childcare expenses and covers up to 35% of $3,000/year for one child or $6,000/year for two or more children. Depending on your income, the credit generally ranges from 20 – 30% of your child-care expenses and includes pre-schools, day care, private kindergarten, as well as after school programs.
Additional Child Tax Credit
TCJA changes also created a scenario where you might receive an Additional Child Tax Credit. You’ll be eligible for this benefit if the refundable credit you get from the regular Child Tax Credit is more than the outstanding taxes you owe. All the information you need to calculate whether this is applicable to your current situation is right on your 1040.
Earned Income Tax Credit
The Earned Income Tax Credit (commonly referred to as EITC or EIC) is another benefit for those who work and bring home a low to moderate income, especially those with children. To qualify you’ll have to meet certain specific requirements that you’ll be able to go over when filing your taxes. Speaking of the act of filing, you’ll need to file a tax return to qualify for the credit. While that might sound self-explanatory, some people aren’t required to file and may not owe tax. If you find yourself in this situation but think you might still qualify for the EITC, then you really should file.
Keep in mind a few extra pointers if you have children living with you who are on the cusp of adulthood and have just started to file. They won’t be able to claim themselves as dependents if you claim them first. This can lead to some sticky situations where a member of your family might end up paying a bit more in taxes while you pay a little less as a result, so watch those numbers carefully.
Get Help With Your Tax Return
All of these various credits can be incredibly confusing, especially considering the recent legislative changes that have sent everyone for a loop. Success Tax Relief is dedicated to making a difference in the lives of taxpayers in Georgia, Texas and wherever they might need a helping hand. If you have more questions about potential deductions related to qualifying dependents or your tax return in general, now is a great time to contact us online for assistance. Our team is available to help you with any part of the tax return process, including providing audit support and helping those who owe the IRS determine the best way to pay of their tax debt.