If you have children it goes without saying that it can be one of the most expensive investments you can ever make. New studies have shown that the average day care cost alone is on average $5,000.00 per family. If you have a baby the cost is even more than this estimate.
Paying less money with the child care tax credit
There are ways around paying large amounts of taxes such as an investment account for your child's college fund however if you like many families are in need of money to use now then this is not an option. If you take into consideration all the costs involved in taking care of a child such as food costs, school tuition, clothing and medical you are looking at a small fortune.
A child care tax credit you might want to consider is a dependent-account credit. This type of credit allows you to deduct your work related expenses such as baby sitters and day care facilities. To qualify your child must be under the age of 13 to be considered.
By utilizing this account to get a tax credit you can save 33.00 of every 100.00 based on being in the 25% tax bracket and also the saving you will receive from the 7.5% Social Security and Medicare taxes. This is the child care tax credit that you will receive from the Federal government and in most cases you can save even more through your state.
The federal limit of deductions of this type are limited to 5000.00 per working family. You have to have your employer withdraw the amount you set to put into your child care savings to avoid problems that might arise with the IRS. Even though you are putting this money into a separate account you are allowed to use it any time in order to pay for your child care expenses but you have to make sure to use this money for that.
The IRS does not like when people use these types of accounts and play with the numbers. The best way to do this is to submit your bill to your employer so that they can issue you a check for the child care expense you have. Most people are entitled to this kind of savings account but you have to check with your tax preparer to make sure you meet all the requirements.
Claiming the credit
TurboTax online searches over 350 deductions and credits for things like child care, education, mortgages and charitable donations, to help you get every dollar you deserve. Visit TurboTax online to learn more today!