Latest news with #ChildandDependentCareCredit
USA Today
07-07-2025
- Business
- USA Today
How the Child and Dependent Care Credit can cut summer camp costs in 2025
Return-to-office mandates often trigger a return to big bills for summer day camps. So, it doesn't hurt to take a refresher course now on how one decent tax break can help save families a few bucks. Many parents might not realize it, but you can get a bit of relief from the high cost of day care bills and summer day camps paid in 2025 when you file your tax return next year. What is the Child and Dependent Care Credit? The Child and Dependent Care Credit applies to children who are younger than 13 when the day care is provided. You'd complete Form 2441 to calculate the credit and file the form along with your 1040 federal income tax return. Taxpayers also can review IRS Publication 503 for rules. "Summer day camp expense can be claimed only if the care was necessary for the taxpayer to do work or to look for work," said Brandon Nishnick, manager for tax practice and ethics for the American Institute of CPAs. "The primary purpose must be for child care and the camp must be a daytime-only program," he said. Expenses associated with sending children to an overnight camp would not qualify. Typically, you're able to recoup only a small portion of your costs. Yet, no one should leave money on the table and ignore the credit if they qualify to claim it. "In general, to qualify, parents must work or be full-time students and use a day care, summer camp, or another program while they work and the provider must have a Social Security Number or Federal Identification Number that will be needed to apply for the tax credit," said Mark Steber, chief tax officer for Jackson Hewitt Tax Services. How do you calculate the tax credit for summer camps? The Child and Dependent Care Credit is calculated as a percentage of your qualifying expenses, which ranges from 20% to 35%, depending on your adjusted gross income, according to Nishnick. If a taxpayer has a qualifying child under the age of 13, typically they can claim up to $3,000 in eligible care expenses or $6,000 for two or more children. 2026 tax planning: Don't expect a speedy tax refund in 2026 from an understaffed IRS The maximum credit ends up being up to $1,050 for some taxpayers with one child or dependent. And it can be as high as $2,100 for some taxpayers with two or more children or dependents. Or it can be much less than that. How much you'd save in taxes would vary based on your income and your expenses. The value of the credit declines as your income goes up. Consider this example: Take someone who has two children under 13. Say they spend $8,000 in the year for care expenses. Only $6,000 is eligible in this case to be taken into account as an expense for the credit. If your adjusted gross income is $45,000, you would receive a credit of $1,200, which is 20% of the $6,000 in eligible expenses, Nishnick said. Again, expenses must be associated with what you'd pay for care during the time you went to work or were looking for work. We're not talking about what you'd pay a sitter on the weekend to go out to a concert. In order to go to the office or work site, many parents must arrange for care, and paying for the child to attend a day camp program is one such option. Make sure to keep detailed records now "As a credit, it is a dollar-for-dollar reduction in tax owed," said Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting in Riverwoods, Illinois. The credit is a nonrefundable tax credit on 2025 returns that can reduce the amount of income tax you owe. But Luscombe noted there is no credit to the extent that no tax is owed. It won't generate an additional refund if your tax liability for the year is less than the credit amount. What you want to do now is keep good, detailed records of your child care expenses, including the camp expenses and provider information if related to a summer camp. The biggest mistake that parents make, some experts said, is failing to keep records of child care during the year, including amounts paid and the address and Taxpayer Identification Number of the summer camp or child care provider. Nishnick said parents should take time now to ensure that their care provider is eligible if they plan to claim the credit. "They cannot be your spouse, the child's parent, a dependent, or a relative under the age of 19. The care provider must be properly documented with a name, address and taxpayer ID," Nishnick said. And don't expect to get any credit for an overnight camp. "For example, if the parent works a third shift or overnight such as in a hospital, these costs for an overnight camp would still not qualify," Nishnick said. Your child's age at the time the care is provided remains a key factor. "The care must be for a child who is under the age of 13 at the time the care is provided," Nishnick stressed. "For example, if the child turns 14 the second day of summer camp, then the remainder of those expenses would not qualify." Unfortunately, Steber said, parents often overlook or forget to claim the Child and Dependent Care Credit. Or some try to claim ineligible expenses toward the credit. Some parents, of course, have been able to work remotely in previous summers since the COVID-19 pandemic hit in 2020. Yet, we're continuing to hear about more return-to-office initiatives. Ford Motor, for example, announced in June that the automaker is calling the majority of its salaried workforce back to the office four days a week, effective Sept. 1. More families could be juggling more child care expenses and might want to brush up on available tax breaks. The Child and Dependent Card Tax Credit can work whether you itemize deductions or claim the standard deduction. Make no mistake, the rules as they are right now are complicated. "The credit is calculated based on your income and a percentage of expenses that you incur for the care of qualifying persons to enable you to go to work, look for work, or attend school," according to the Internal Revenue Service. Currently, Luscombe noted the credit phases down from 35% of expenses for taxpayers with an adjusted gross income of $15,000 or less to 20% of expenses with up to $43,000 in AGI. It never falls below 20%. The total expenses that you may use to calculate the credit may not be more than $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals. If you use a flexible spending account at work, though, you're not going to be able to claim what you spent out of that account. If you saved $1,000 in a flexible spending account and used that money toward day care or summer day camp expenses, for example, you could calculate the dependent care credit based on up to $2,000 in expenses for one child. The IRS has an online tool that can help you run some numbers to see whether you qualify to claim the Child and Dependent Care Credit. Who qualifies? It's not just expenses for children. "A qualifying person generally is a dependent under the age of 13, a spouse or dependent of any age who is incapable of self-care and who lives with you for more than half of the year," the IRS states online. Some tax rule changes could be ahead Going forward, some changes in the child and dependent care credit could be ahead for 2026 expenses. On July 1, the U.S. Senate narrowly approved tax-and-spending legislation that President Donald Trump calls "One, big, beautiful bill." The package went to the U.S. House, where it passed July 3. It was being sent to Trump to be signed into law. The Senate reconciliation bill includes a proposal to increase the maximum rate to 50% from 35% of qualifying expenses for lower-income families. Luscombe noted that this change is proposed to be effective starting in 2026. Garrett Watson, director of policy analysis at the nonpartisan Tax Foundation, said a broader range of households would see a higher credit value for eligible dependent care expenses on their tax return under the Senate version. The 50% credit rate would phase down for taxpayers with adjusted gross income over $15,000. For example, the percentage used to calculate the credit could be reduced from the new 50% mark by 1 percentage point, but not below 35%, for each $2,000 that the taxpayer's AGI exceeds $15,000. The percentage would then be further reduced, but not below 20%, by 1 percentage point for each $2,000 ($4,000 for joint returns) that their AGI exceeds $75,000 ($150,000 for joint returns). Watson noted that the Senate proposal was scored by the Joint Committee on Taxation, a nonpartisan government agency, as costing about $9.3 billion over 10 years. Contact personal finance columnist Susan Tompor: stompor@ Follow her on X @tompor.
Miami Herald
21-05-2025
- Business
- Miami Herald
Clear Start Tax Highlights the New IRS Policies Taxpayers Need to Know in 2025
From Tax Bracket Adjustments to New Audit Priorities, Clear Start Tax Helps Taxpayers Navigate the Year's Key IRS Changes IRVINE, CALIFORNIA / ACCESS Newswire / May 21, 2025 / With major IRS updates rolling out in 2025, Clear Start Tax, a nationally recognized tax resolution firm, is helping Americans understand what these changes mean for their finances, tax returns, and audit exposure. While the IRS is expanding enforcement efforts, it's also introducing key adjustments and opportunities that taxpayers should understand before they file. From inflation adjustments to new enforcement priorities, Clear Start Tax breaks down what taxpayers need to know to stay informed and protected. Preparing Taxpayers for 2025: Clear Start Tax's Guide to IRS Changes Clear Start Tax is helping taxpayers stay informed and prepared as the IRS rolls out several important policy changes for 2025. From updated tax brackets to expanded retirement limits, here's what individuals and families need to know to plan ahead. Inflation-Adjusted Tax Brackets and Standard Deductions According to Clear Start Tax, to keep pace with rising costs, the IRS has increased tax bracket thresholds and standard deductions for 2025. Standard deduction increases:Single filers: $15,000 (up from $14,600)Married filing jointly: $30,000 (up from $29,200)Heads of household: $22,500 (up from $21,900)Tax bracket adjustments:Income thresholds have been raised by roughly 2.8% to help taxpayers avoid being pushed into higher brackets due to inflation alone. Retirement Contribution Limit Enhancements Clear Start Tax shares good news for retirement savers: the IRS has raised contribution limits for 2025. 401(k), 403(b), 457 plans: $23,500 (up from $23,000)Catch-up contributions:Age 50+: $7,500New for ages 60-63: $11,250, bringing total potential contributions to $34,750 Estate and Gift Tax Exclusion Increase Families making long-term plans will benefit from expanded limits: Individuals: $13.99 million (up from $13.61 million)Married couples: $27.98 million Expanded IRS Direct File Program More taxpayers now have access to free IRS filing options: Available in 24 statesNow covers taxpayers with 1099 income and credits like the Child and Dependent Care Credit Increased Focus on High-Income Audits Clear Start Tax warns that IRS enforcement will increasingly target: High-income householdsCryptocurrency transactionsSmall businesses claiming large deductions This shift makes careful tax preparation, documentation, and professional guidance more important than ever. "Understanding these updates is critical to making informed tax decisions and avoiding surprises," said the Head of Client Solutions at Clear Start Tax. "We help our clients navigate these new rules, protect their finances, and stay compliant with confidence." How Clear Start Tax Helps Taxpayers Stay Prepared With new policies come new risks-and opportunities. Clear Start Tax provides: Personalized financial reviews to assess impactGuidance on selecting the right IRS relief programsExpert negotiation and communication with the IRSOngoing compliance support to avoid penalties or audits About Clear Start Tax Clear Start Tax is a full-service tax liability resolution firm that serves taxpayers throughout the United States. The company specializes in assisting individuals and businesses with a wide range of IRS and state tax issues, including back taxes, wage garnishment relief, IRS appeals, and offers in compromise. Clear Start Tax helps taxpayers apply for the IRS Fresh Start Program, providing expert guidance in tax resolution. Fully accredited and A+ rated by the Better Business Bureau, the firm's unique approach and commitment to long-term client success distinguish it as a leader in the tax resolution industry. Need Help With Back Taxes? Click the link below: Contact Information Clear Start TaxCorporate Communications Departmentseo@ 535-1627 SOURCE: Clear Start Tax
Yahoo
07-04-2025
- Business
- Yahoo
Kids bring joy, chaos... and tax benefits. What to know as a new parent filing a return
If you welcomed a new baby, adopted a child, or became a stepparent in 2024, your tax return should look different this year. While you may be busy adjusting to life with your new family member, don't forget to file your tax return before the federal April 15 deadline. Experts advise taxpayers to file sooner rather than later to avoid mistakes. If new parents set aside time to research deductions and credits they may now qualify for, they can save hundreds if not thousands of dollars. 'One of the biggest life changes is new dependents,' said Mark Steber, senior vice president and chief tax officer at Jackson Hewitt. 'New parents in particular have a whole host of new considerations.' Between diaper changes, meal prepping, and doctors' visits, you've got your hands full. Here are some things to avoid getting lost in the shuffle: More: What is the average tax refund? Why yours might be lower or higher Make sure to keep track of your new dependent's social security number, adoption tax identification number or individual tax identification number. Confirming your child's birth is the only way the IRS can verify you are eligible to claim parental tax breaks. Once you have it, make sure it is entered correctly on your tax forms. Mistyping social security numbers is one of the simplest, yet most significant mistakes people make on their returns, according to TurboTax CPA and tax expert Lisa Greene-Lewis. There's a chance that a new dependent may bring a new tax filing status. If you were previously married filing jointly and had a child join your family in 2024, it will likely remain the same, but you and your spouse might expect more credits and deductions to be available to you. If you are legally single, experts advise you to change your filing status to head of household to maximize your benefits if you are eligible. Everyone's circumstances are different. If you're unsure of the best filing status for you, the IRS has a five-minute online survey to help you decide. Kids bring many things to parents' lives including love, chaos, and a whole new perspective, but tax experts agree they also bring something else important. 'Kids are worth valuable deductions,' Greene-Lewis said. In addition to higher thresholds for the standard deduction and the Earned Income Tax Credit, here are some credits you shouldn't miss out on, according to the IRS: The Child Tax Credit: Taxpayers can claim up to $2,000 for each qualifying dependent child when filing their return this year so long as they meet all eligibility factors and have an annual income under $200,000 or under $400,000 if filing a joint return. Child and Dependent Care Credit: If taxpayers paid for childcare or daycare expenses, they may qualify for this credit and claim up to 35% of those expenses so long as they are eligible. Adoption Tax Credit: Taxpayers may claim eligible adoption expenses for each eligible child if they went through the adoption process during 2024. It applies to international, domestic, private, and public foster care adoptions. After you file your return, make sure to fill out a new W-4 form with your employer reflecting that you now have a dependent. The change will likely lower your withholding and decrease your tax refund in 2026, but will increase the size of your paychecks going forward. Reach Rachel Barber at rbarber@ and follow her on X @rachelbarber_ This article originally appeared on USA TODAY: Tax tips and benefits every new parent should know Sign in to access your portfolio
Yahoo
06-04-2025
- Business
- Yahoo
Kids bring joy, chaos... and tax benefits. What to know as a new parent filing a return
If you welcomed a new baby, adopted a child, or became a stepparent in 2024, your tax return should look different this year. While you may be busy adjusting to life with your new family member, don't forget to file your tax return before the federal April 15 deadline. Experts advise taxpayers to file sooner rather than later to avoid mistakes. If new parents set aside time to research deductions and credits they may now qualify for, they can save hundreds if not thousands of dollars. 'One of the biggest life changes is new dependents,' said Mark Steber, senior vice president and chief tax officer at Jackson Hewitt. 'New parents in particular have a whole host of new considerations.' Between diaper changes, meal prepping, and doctors' visits, you've got your hands full. Here are some things to avoid getting lost in the shuffle: More: What is the average tax refund? Why yours might be lower or higher Make sure to keep track of your new dependent's social security number, adoption tax identification number or individual tax identification number. Confirming your child's birth is the only way the IRS can verify you are eligible to claim parental tax breaks. Once you have it, make sure it is entered correctly on your tax forms. Mistyping social security numbers is one of the simplest, yet most significant mistakes people make on their returns, according to TurboTax CPA and tax expert Lisa Greene-Lewis. There's a chance that a new dependent may bring a new tax filing status. If you were previously married filing jointly and had a child join your family in 2024, it will likely remain the same, but you and your spouse might expect more credits and deductions to be available to you. If you are legally single, experts advise you to change your filing status to head of household to maximize your benefits if you are eligible. Everyone's circumstances are different. If you're unsure of the best filing status for you, the IRS has a five-minute online survey to help you decide. Kids bring many things to parents' lives including love, chaos, and a whole new perspective, but tax experts agree they also bring something else important. 'Kids are worth valuable deductions,' Greene-Lewis said. In addition to higher thresholds for the standard deduction and the Earned Income Tax Credit, here are some credits you shouldn't miss out on, according to the IRS: The Child Tax Credit: Taxpayers can claim up to $2,000 for each qualifying dependent child when filing their return this year so long as they meet all eligibility factors and have an annual income under $200,000 or under $400,000 if filing a joint return. Child and Dependent Care Credit: If taxpayers paid for childcare or daycare expenses, they may qualify for this credit and claim up to 35% of those expenses so long as they are eligible. Adoption Tax Credit: Taxpayers may claim eligible adoption expenses for each eligible child if they went through the adoption process during 2024. It applies to international, domestic, private, and public foster care adoptions. After you file your return, make sure to fill out a new W-4 form with your employer reflecting that you now have a dependent. The change will likely lower your withholding and decrease your tax refund in 2026, but will increase the size of your paychecks going forward. Reach Rachel Barber at rbarber@ and follow her on X @rachelbarber_ This article originally appeared on USA TODAY: Tax tips and benefits every new parent should know Sign in to access your portfolio
Yahoo
25-02-2025
- Business
- Yahoo
4 ways to maximize your tax refund
(NewsNation) — Many Americans count on their tax refund to make ends meet, and there are several things you can do to ensure you get as much money back as possible. A recent Credit Karma survey found that 37% of taxpayers rely on their refund to get by, rising to 50% among millennials. According to the IRS, the average tax refund in 2024 was $3,138, meaning thousands of dollars are potentially at stake when you file your federal tax return. 'It's your single largest financial transaction each and every year,' said Mark Steber, chief tax information officer at Jackson Hewitt Tax Service. 'The dollars involved have never been higher.' Here are four things to keep in mind to maximize your tax refund. How long does it take to get your tax refund? Your filing status has a major impact on how much tax you owe. It determines your income tax bracket, the amount of your standard deduction and whether you're eligible for certain credits and deductions. Typically, your filing status is based on whether you were married or unmarried at the end of the calendar year (Dec. 31), but there's more to it than that. If you're unmarried: Single versus head of household Those who aren't married but help provide for a child or another qualifying family member may be able to file as head of household — a special filing status that has several tax benefits. For tax year 2024 (the tax returns you file in 2025), heads of household can claim a standard deduction of $21,900 compared to $14,600 for those filing as single, which lowers their tax liability. Taxpayers who claim head of household also have their income taxed at a more favorable rate than single filers. To be eligible for head of household, you'll need to have a qualifying dependent, a child or relative, who relies on you for financial support. 7 key tax terms you should know In most cases, a person can't be claimed as a dependent on more than one tax return. You also can't claim your spouse if you're filing jointly. And no, your pet dog doesn't count either, even if it depends on you for survival. If you're unsure, the IRS has a tool to help you figure out your filing status here. If you're married: Filing jointly versus separately Married couples can choose whether to file jointly, which involves a single return, or file separately, which means you and your spouse have your own filings with different incomes, deductions and credits. For the majority of married couples, filing jointly makes the most financial sense. That's because joint filers typically receive more tax benefits. They're eligible for a larger standard deduction and are more likely to qualify for certain tax credits like the Child and Dependent Care Credit. Lisa Greene-Lewis, a CPA and tax expert with TurboTax, summed up the benefits like this: 'You can make more income but be taxed less because the tax brackets and the income ranges are larger if you're married filing jointly. However, there are some cases where a married couple may want to file separately. For example, if you're in the process of separating and don't want to share your tax liability. Greene-Lewis said self-employment could be another reason married couples choose to file separately. It may also make sense to file separately if you or your spouse has significant medical bills because doing so may help you clear the IRS threshold to deduct those expenses, according to TurboTax. It's important to get your married filing status right because choosing to file separately could disqualify you from tax benefits that you would otherwise be able to claim. You can reduce your overall tax bill by taking deductions, which allow you to lower your taxable income and, therefore, the taxes you owe. Tax filers have two main options: They can claim the standard deduction, a fixed amount set by the IRS, or choose to itemize deductions, which reduces their tax bill by accounting for specific expenses. Most tax filers opt for the standard deduction because it's easier and doesn't require any proof. It's the amount all taxpayers with earned income are eligible to deduct before paying any taxes. You can see what the standard deduction is based on your filing status here. Others may forego the standard deduction in favor of itemizing deductions, which offer a greater tax benefit for many, particularly homeowners. 4 tax advantages for homeowners in 2025 That's because itemizing deductions allows homeowners to write off expenses like mortgage interest and property taxes up to a certain amount. Tax filers can also deduct medical expenses, charitable donations and other expenses when they itemize. If your total itemized deductions are greater than the standard deduction, then itemizing can result in a lower tax bill. But it tends to be more time-consuming and requires you to keep track of your expenses closely. Also, don't expect the IRS to tell you which deductions you should take. 'The IRS does not monitor that for you,' Steber said. 'If you leave off a benefit, like a larger itemized deduction, it stays off until you go and amend it or fix it.' Certain expenses are deductible whether you take the standard deduction or itemize. According to the IRS, those are: Alimony payments Business use of your car Business use of your home Money you put in an IRA Money you put in health savings accounts Penalties on early withdrawals from savings Student loan interest Teacher expenses For some military, government, self-employed and people with disabilities: work-related education expenses For military servicemembers: moving expenses If you itemize, you can deduct these expenses: Bad debts Canceled debt on home Capital losses Donations to charity Gains from the sale of your home Gambling losses Home mortgage interest Income, sales, real estate and personal property taxes Losses from disasters and theft Medical and dental expenses over 7.5% of your adjusted gross income Miscellaneous itemized deductions Opportunity zone investment It's easy to confuse tax deductions and tax credits, but the two are not the same. Unlike deductions, which reduce your taxable income, a tax credit is a dollar-for-dollar amount tax filers can claim that directly reduces the income tax they owe. For example, if you owe $10,000 and you're eligible for a $1,000 tax credit, that credit lowers your tax bill by $1,000 — to $9,000. By comparison, a $1,000 deduction reduces your taxable income, not your tax bill directly, so if you're in the 24% tax bracket, that works out to $240 in savings. Should you claim a tax credit or deduction on your taxes? Steber called tax credits 'the holy grail' of tax benefits and pointed out that they are not related to deductions, meaning you claim them regardless of whether you itemize or take the standard deduction. Greene-Lewis emphasized the importance of having your records in order, especially if you have children. 'Kids are worth valuable deductions and credits, but you have to have the accurate Social Security number in order to get those,' she said. A few common tax credits you may qualify for: Earned Income Tax Credit (EITC): This is for low-to-moderate working individuals and families. The amount of the credit depends on your income, marital status, and the number of children you have. For tax year 2024, the maximum credit ranges from $632 for those without children up to $7,830 for tax filers with three or more qualifying children. Child Tax Credit (CTC): You may qualify for this tax break if you have children under 17. For 2024, the credit is worth up to $2,000 per qualifying child. The amount you get depends on your income and how many children you have. You can learn more about the eligibility requirements here. American Opportunity Tax Credit (AOTC): A credit for qualified higher education expenses like tuition, books and supplies. In 2024, you can claim up to $2,500 per eligible student. To be eligible, the student must be in their first four years of higher education. Contributing to an individual retirement account (IRA) can lower your tax liability, and there's still time to do it for the 2024 tax year. Tax filers have until tax day, April 15, to make contributions to an IRA, which could lower their 2024 tax bill. That's because the so-called 'traditional' IRA lets you contribute pre-tax dollars, which means you can deduct the amount you put in from your taxable income. For 2024, you can contribute up to $7,000 to a traditional IRA (plus a $1,000 catch-up if you're age 50 and over). What is a Roth IRA for kids, and how does it work? As long as you don't exceed the $7,000 limit, you can designate any money you put in between now and tax day as a prior-year contribution. Steber said the IRA is one of the only things you can do after the end of the calendar year to affect last year's taxes. 'It is a time-tested and proven tax benefit,' he said, calling the IRA a 'golden gem.' There are a few limitations on IRA deductions. For example, you may need to reduce or entirely eliminate your IRA deduction if you or your spouse make a certain amount of money or are covered by a workplace retirement plan like a 401(k). Also, contributions to Roth IRAs are not deductible. Copyright 2025 Nexstar Media, Inc. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
