Becoming a parent comes with certain perks. Parents are eligible for a host of tax deductibles and credits:
- One of these is the Child Tax Credit, which offers up to $1,000 per qualifying child. A qualifying child is one who is under the age of 17 at the end of the tax year, claimed as your dependent, and living with you for more than half of the year.
- Another credit is The Child and Dependent Care Credit, which if you and your child qualify, can be very valuable. It’s designed to offset against baby sitting and daycare costs incurred so that you can work (or look for work) and amounts to up to 35% of your qualifying expenses. The child must be below thirteen years of age, and should not be under a spouse’s care. Income restrictions apply, too, along with other rules. Note, too, that this credit is available if you pay someone to care for a non-child dependent, too, such as an elderly parent.
- The Earned Income Tax Credit can be of great help to low-income working folk. Sadly, it is rarely claimed, owing to its rampant complexity and restrictions. It’s claimed by only a fifth of working folk, at an average of $2,200. You don’t even need to have children to qualify, though the amount creditable increases with the number of children.
The tax credits mentioned above are not exclusive to the married parents. It is important to realize this fact, as most single parents tend to miss out on credits they qualify for, as they’re under the impression that only the married qualify.
Single parents are a significant cohort in our population. In 2011, 27 % of all American children lived with only one parent.
If you happen to be single and a parent, you should consider switching to “Head of household” for tax purposes, as it shall cut your tax bill. The Heads of households in 2011 are eligible for exemptions of $3,700 for themselves and each qualifying child against their taxable income. Say you have three children? That’s a total reduction of your tax burden by $14,800.
Short End of the Stick
With respect to tax code, single parents get the short end of the stick. For example, in home sale exclusion, the person is offered the chance to exclude up to $250,000 of the qualifying gain from the sale of a home from taxable income. This potentially large tax break is doubled to $500,000 exclusion for married couples, exclusively. A single parent may be a head of a household of three, four or five people, but still enjoys the benchmark exclusion for a single person, which hardly seems fair.
The limits for married couples filing jointly are far higher than for singles and heads of households, despite the possibility that single parents may be supporting much larger families, and may be incurring much higher expenses, sans the benefit of a double income. However, in some cases, such as when the single filer earns lower income than a married couple may end up with a higher dependent credit.
The tax system may seem unfair, but your hands are tied. As such, you ought to make sure you take advantage of all the tax breaks available to you as it may save you lots of money.