It’s hard to imagine what it’s like to be a full-time stay-at-home parent, especially if you’re a single parent.
However, there is something that working parents should try to do at least once: Have their children serve as their own dependent care providers. They can take care of themselves and learn valuable life skills without even realizing it.
The child and the dependent care program are two different things. Under current law, qualifying people may get up to six months of free child care each year through a program administered by their state’s Department of Social Services. In turn, the state’s Department of Social Services benefits from the money that parents who would otherwise have to pay for child care have saved.
To qualify, a parent must earn not more than $3,000 per month. Then they must make contributions to their state’s dependent care program equal to 15% of her earnings or $150 a year per child up to two at home and three in school. So if you make $5,000 a month and your children are 6 and 9 years old, you’d contribute about $150 per month.
In order to be eligible for the dependent care benefit you typically need six months of paid leave from work each year. Many of the programs are structured so that up to half of the benefits are paid in the first six months, with the full amount being paid thereafter.
The current maximum age limit is 21 years old. Some states require that parents have earned at least a high school diploma within a few years of their children’s birth. Some states have an income limit and others don’t. Some states assess different taxes on top of this benefit program while others don’t assess taxes on people receiving these benefits at all.
A parent participating in the dependent care program can also get a tax credit of up to 35% of his child care expenses. The maximum tax credit is $3,000 ($6,000 for two children) per family per year and this amount is not subject to income adjustments.
The program works out well for those who can meet the eligibility requirements and who have little or no savings.
However, if you are further along in your career, the pooled money to which you contribute likely is not enough to cover much of your child-care expenses. One way around that problem is to try to assemble a group of eligible parents, with each responsible for a set portion of monthly child-care payments. They then pay this money into a common account, which they use to pay all of their dependent care expenses. If the funds aren’t enough, members can make up the difference from their own pockets or by borrowing money from banks or other lending institutions.
By law, you must incur child care expenses in order to get the dependent care tax credit and you cannot exclude more than $3,000 per year from your income for purposes of computing your federal tax liability.
The longer you wait to qualify, or simply refuse to, the further you may fall behind financially when your children become young adults and are able to spend more time in child care centers or day care. You may even find yourself unable to work because the child care centers don’t take toddlers or preschoolers.
Alternatively, you can get involved with local schools. You might even consider volunteering to drive your own children to school or help out in their classrooms after school.
Child care expenses are deducted from your income in two ways. If you participate in a work-sponsored dependent care benefit program and also if your taxable income is below a certain level.
The dependent care credit may also be claimed by sending in the excess of child care expenses paid for by your employer over the amount deductible at your own expense. This allowance is allowed to all parents, regardless of whether they have a work-benefit program through their employer.
Families with income below $32,000 (and below $46,708 if they have more than one child under 13 years of age) may apply for a new benefit from the federal government called the “Making Work Pay” tax credit. This credit is worth $400 for a single taxpayer and is deducted from your federal income taxes.
The tax benefits of day care center daycare companies are usually offered or mandated by the state government and may depend on specific laws that govern such centers.
Taxpayers with children under 18 years of age may be eligible for the Child Tax Credit on Form 8812. This credit is equal to $1,000 per qualifying child and is non-refundable.
A child and dependent care program, conclusively, is a favorable step towards ensuring unprecedented care of children. Even if the parents are not enough capable to provide for such care, this program is a great help to struggling parents.
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