Tax Code Changes Offer Breaks for Larger Families and College Costs
Filed under: In The News
The income limits for claiming the credit also have changed, making it available to many families that were cut off before. For the 2009 tax year, the maximum income for a family with one child is $35,463 [or $40,463 for married parents filing jointly], and it goes up to $43,279 for a family with three kids [or $48,279 if the parents are filing jointly].
The child tax credit stayed put at $1,000 per child, but Steber points out the minimum income a parent had to earn to claim this credit has dropped to $3,000, so more of the working poor can qualify. And take it now, if you can: It will shrink to $500 for the next tax year, warns Melissa Labant, technical manager in the tax division of the American Institute of Certified Public Accountants.
A lot of this year's changes are adjustments for inflation, Labant tells ParentDish in a phone interview. But she points out one very significant addition: The new American Opportunity Tax Credit, which gives parents a dollar-by-dollar tax savings of up to $2,500 per college student.
The American Opportunity Credit expands on the old Hope credit, which was only good for students in the first two years of college. The new credit covers students in the first four years and is $700 more than the Hope credit.
"This is something that is a huge advantage for taxpayers who have kids in college," Labant says. It does get reduced based on the family's income, but it has very generous limits before it's phased out -- up to $160,000 in annual income for married filers, she says. It's also refundable up to $1,000 per dependent student, so if the credit is bigger than your tax liability, you can get that money back from the IRS.
To get the full $2,500 credit, parents have to spend $4,000 in qualified expenses, but those include everything from tuition and fees to books, so it's not so hard to qualify, Labant says.
And, if you were one of those parents who thought ahead and saved college money in a 529 plan, you get another break. If you took out 529 money for college costs, you can deduct more of those costs from the amount you have to declare as income. The government has changed the definition of qualified education expenses to add the cost of Internet access and educational software, Labant says.
"The 529 plans have become better over the years," she says.
If your children are much younger, you can still get a break. Child care expenses are deductible, even if "you're paying the lady down the hall," Steber says. There are no major changes this year, but many taxpayers think they can't qualify for the deduction, when all you need is a taxpayer ID or Social Security number for that person and documentation of what you paid, he says.
"That's one of my favorite overlooked expenses," Steber says.
All households should look closely at their taxes this year. Because so many of those credits and deductions depend on income, many families hit by the recession have tax breaks they couldn't get before, Steber warns.
"This is a very important year for people to review their tax changes," he says. "You may have been on cusp in years past -- or very far in years past -- but not this year."
Related: Five Year-End Tax-Savings Tricks
Start by teaching him that it is safe to do so.