back taxes help number Back Taxes Help Facebook BackTaxesHelp.com Twitter BackTaxesHelp.com RSS Feed

Fiscal Cliff Deal Preserves Key Tax Breaks for Families

January 15th, 2013 by Filed under: Tax Credits & Deductions, Tax News

fiscal-cliff-family-creditsThe government’s plan to avert the fiscal cliff generated a sigh of relief from millions of Americans who were concerned about an immediate increase in taxes. As part of the deal, lawmakers agreed to extend or make permanent a number of tax credits, many of which are designed to benefit families. Taking advantage of these credits can pay off big at tax time.

Adoption Tax Credit, Child and Dependent Care Credit made permanent

Set to expire at the end of 2012, the adoption tax credit became permanent under the fiscal cliff deal. The credit, which was worth up to $12,650 per child in 2012, is designed to help parents recoup some of the costs of adopting. While Congress succeeded in preserving the adoption credit, the downside is that it’s no longer refundable. This means that adoptive parents can’t get back the difference between their tax liability and the amount of the credit as they could in previous tax years.

The government also took steps to permanently extend the Child and Dependent Care Tax Credit, which is good news for working parents who rely on paid caregivers for children or dependent adults. Families will continue to get credit for up to 35 percent of care-related expenses, capping out at $3,000 per dependent or $6,000 per family. Families would have been limited to 30 percent of expenses, for a maximum of $4,800 per family if the credit had been allowed to expire.

Child Tax Credit and Earned Income Credits extended

As part of the new tax measures, both the Child Tax Credit and the Earned Income Credit were extended for another five years. The Child Tax Credit, worth $1,000 per child, would have been reduced to just $500 without the extension. Qualifying children must be under age 17 and your eligibility to claim the credit is based on filing status and income. If the amount of your Child Tax Credit is more than your tax owed, you may be able to claim the Additional Child Tax Credit.

The five-year extension of the Earned Income Tax Credit is good news for taxpayers earning a low to moderate income. The credit reduces the amount of tax you owe, which could add up to a big refund when it’s time to file. The amount of the credit you qualify for is based on your income and number of dependents. For 2012, the credit ranged from a minimum of $475 for taxpayers with no children to $5,891 for families with three or more qualifying children. The fiscal cliff plan also extends the “third-child” provision of the earned income tax credit rules through 2017.

Extension of education credits and deductions

If you’re paying college expenses for yourself or qualifying child, taking a credit or deduction can help to offset some of the costs. Under the fiscal cliff deal, the government agreed to extend the American Opportunity Tax Credit through 2017. The credit, formerly known as the Hope Credit, covers the first $2,000 in education expenses plus 25 percent of the next $2,000 as of 2012. Up to 40 percent of the credit is refundable, meaning you may be eligible to get up to $1,000 back, regardless of whether you owe any taxes or not. The credit is available to single filers earning less than $80,000 and joint filers earning less than $160,000.

The tuition and fees deduction was also extended through the end of 2013, which means students can deduct up to $4,000 of qualified education expenses. The income limits for claiming the deduction are the same as those for the American Opportunity Tax Credit. Keep in mind, however, that you can’t claim the tuition and fees deduction and the American Opportunity Credit for the same expenses in the same year.

The bottom line

While the extension of these tax breaks is good news for families, there is one key tax measure that was allowed to expire. The payroll tax holiday, which lowered payroll taxes from 6.2 percent to 4.2 percent, was allowed to expire at the beginning of 2013. Overall, this means Americans will see a smaller paycheck, with the average taxpayer taking home approximately $1,700 less each year. Knowing which credits you qualify for can help to minimize some of the bite of the payroll tax increase.


twitter
Tax RSS Feed

Home Tax Problems Tax Solutions Free Consultation State Tax ReliefSite Map Site Map2

footer-logos BBB Logo spacer Privacy Sealspacer Security Seals

BackTaxesHelp.com © 2013 • Privacy Policy & Disclaimer