We all know that raising children is expensive. And although it’s definitely rewarding in its own ways, it’s not uncommon to run into some financial bumps over the years. Claiming the tax credits for your family can help offset some of those costs. But are you prepared for what’s coming down the line?
The deductions you’re getting now won’t be available forever. Learning a little more about how your tax implications will change over the years can help you avoid the shock of getting a higher tax bill.
When Do You Lose Child Tax Credits?
In 2021, certain families with a child under age 6 received an extra $600 toward their Child Tax Credit to reach a maximum of $3,600. This “bonus” is set to go away after 2021 unless renewed by Congress.
As your children age, certain tax credits that have been more “long term” will fall off too. The first one of these is the Dependent Care Credit. Hopefully you’ve been able to claim this for any children who have been in daycare while growing up. For the 2021 tax year, the Dependent Care Credit awards 50% back (against a max amount of $16,000) for your qualified daycare expenses for qualifying taxpayers. This goes away once a child reaches age 13.
Next up is the Child Tax Credit (the traditional one). After kids turn 17 years old, your tax bill could actually increase by $2,000 to $3,000. It just depends on your income. It’s a good idea to keep this change in mind, but fortunately, there might be some adjustments to this part of the tax code coming up. Stay tuned!
Finally, the Earned Income Tax Credit is lost sometime between age 19 and 24. (You’ll be able to hold onto the credit until age 24 if the child is a full-time student.) Your potential credit here could be worth as much as $6,728 in 2021 as long as you have three qualifying children or more. No one wants to be surprised to lose this credit. Make a note to plan accordingly.
Preparing for Your Family’s Future
Being aware of these age triggers helps families monitor their spending more effectively, as well as their savings goals. One strategy for your tax planning is to increase your paycheck withholdings for the coming year to lower your tax responsibility. Talking with your tax planner or accounting company can give you confidence and peace of mind for the road ahead—even without these tax credits. That’s where we can help.
Let’s Answer Your Questions About the Tax Code
The tax code is ever-changing, and it can be really difficult to stay informed on your own. After all, you’ve already got enough to worry about! Just leave it to us. NSO & Company works with small- to medium-sized companies, individuals, and families on all of their tax planning needs.
Let our team help ease your mind. We’re always happy to schedule a consultation to review your previous tax returns and make sure you’re claiming all of your credits. We’re based in Fishers, Indiana and work with clients all throughout the greater Indianapolis area. We also have numerous families who partner with us from all over the US! Please don’t hesitate to give us a call at (317) 588-3131. We’d love to help you strategize.