The Tax Impact as Your Children Grow Up – Prepare now for potential income tax hits
As your children age, you can easily be surprised by a larger tax bill. To help ease the possible burden, here are some possible tax hits to prepare for as your children age
A higher tax bill in your future
- At age 13: loss of your Dependent Care Credit. If your children are in daycare and you offset some of this cost with the Dependent Care Credit you will lose this benefit when they reach age 13. The impact: a credit against up to $6,000 in qualified daycare expenses. The good news here is that your children may no longer need the care as they get older.
- At age 17: loss of the Child Tax Credit. You may be claiming a child tax credit of up to $1,000 for each child under the age of 17. This credit phases out for income levels above $110,000 for married joint filers. Because it’s a credit that comes off the top of your tax bill, rather than a deduction that reduces taxable income, you’ll feel it even more when it’s gone.
- At age 19 (24 if a full-time student): loss of the Earned Income Tax Credit (EITC). The EITC pays a potential credit worth up to $6,318 for people with three or more qualifying children. Children stop being counted when they turn 19, or when they are 24 if they are full-time students.
- At age 19 (24 if a full-time student): loss of personal exemptions. You’re used to getting an extra personal exemption for every child under the age of 19, or under 24 if they are a full-time student. For the 2017 tax year, that’s potentially $4,050 in tax-free income for each child. When that goes away, plan for a higher tax burden.
What to do
Many of the child-related credits and deductions are meant to offset the cost of raising a child. Prepare now for the inevitable change in your tax situation that occurs when they go away. Here are some ideas:
- Know the age triggers. Note the tax years that these changes will occur. If a child is approaching one of these key years, adjust your spending to save a little more during the year to account for the change.
- Revise your withholdings. At the beginning of each key year, look at adjusting your withholdings on your paycheck to ease the potential tax burden.
- Conduct a tax forecast. Understand what the true impact of the change might be. You may find the tax hit less of a burden than you think. If you need help planning ahead, don’t hesitate to call.