(This is Part 1 of a 3-part series of related blogs. See part 2 here.)
The trouble with children is that they grow up too fast. I realized this year that my oldest, who will be 17 this summer, will be ineligible for the Child Tax Credit for 2015! Soon he will be off to college, or work, and I will no longer get to claim a dependency exemption for him either! Luckily I have two other deductions – I mean children – that have several more years before they hit “adulthood”.
In all seriousness, there are tax issues that families with children face as those children grow. As I said above, when a child reaches age 17, they no longer qualify for the Child Tax Credit. When a child turns 19, they are considered an adult, and cannot be claimed as a dependent unless they are a full-time student. A college student age 19-23 can still be claimed as a dependent if they otherwise meet the requirements to be a dependent. Individuals who are separated or divorced must also be careful that only one of them claims a child as a dependent for a given year.
The Child Tax Credit mentioned above is available for qualifying dependent children up to age 17. The credit is $1,000 per child, but is phased out as a taxpayer’s adjusted gross income increases. The credit is generally non-refundable , but there is a refundable portion of the credit, called the additional Child Tax Credit, through December 31, 2017. You may want to consult a tax advisor for more information, since the tax code is too complex to explain in a short blog post.
Another issue to consider is the Child & Dependent Care Credit. This non-refundable credit is allowed for only a portion of qualifying childcare expenses paid to allow both the taxpayer and the taxpayer’s spouse to work. Generally, a taxpayer must have earned income and employment-related dependent care expenses, and the child must be a qualifying dependent under age 13. The maximum amount of expenses allowed for the credit is $3,000 per child, up to $6,000 total. Any employer-provided dependent care assistance is subtracted from this amount. The credit amount ranges from 20% to 35% of the net expenses, depending on the taxpayer’s adjusted gross income. Qualifying expenses include payments made to a care provider inside or outside the home, even if it’s a relative (like your mom or sister). This does not include your 18 year old child watching your 5 year old after school, since they are both your dependents. Qualifying expenses do include summer day camps, but not summer school or tutoring programs. Also remember that the credit is for expenses paid so that the taxpayers can work – it generally doesn’t apply if one parent is a stay-at-home mom or dad. As with everything there are exceptions, so be sure to consult your tax advisor to see if you qualify.
Part 2 will explore the requirements for filing if your child has earned and/or unearned income, so stay tuned.