Tax Tips (and other stuff)
Years ago, somebody once told me that being a grandparent will be the BEST years of your life. I used to think, “Yeah right! Body falling apart; have more best doctors than best friends; etc. I don’t think so!”
Well, since I’ve been married almost 40 years, I’ve had a lot of practice admitting I’m wrong. Now that I have four grandkids and a fifth on the way, I am now qualified to be one of those know-it-alls who say, “Being a grandparent will be the BEST years of your life!”
Now being a parent is not as “grand.” Work! Work! Work! Driving kids to school, to piano practice, to karate, to sports, etc. I can now better appreciate why God makes us parents while we are young and have more energy. I also understand all those memes about coffee.
So, there is a tax credit, called “Child Care Credit” that might make being a parent a little easier. Basically, it is computed as follows: In the American Rescue Plan Act earlier this year, it got expanded. The maximum credit for a taxpayer with an adjusted gross income (AGI) of $125,000 or less is now $4,000 for one child, and $8,000 for two or more children. The credit is now FULLY REFUNDABLE!
So, the traditional childcare facilities can cost MUCH more than that, so how is that all that great? How about thinking out of the box a bit. The credit is computed dollar for dollar on what you pay for childcare.
You could pay Grandma and Grandpa. Normally, they do not want to be paid, but maybe they could use the extra cash to help make ends meet. You planned on paying somebody to watch your kids, why not start FIRST with asking your parents if they are interested?
You could pay one of your children who are over 18. I bet those college kids could use some extra money to pay for school, etc.
Do you have a housekeeper? You could expand their role. The IRS says that costs incurred for household services qualify for the credit if they are incurred at least partially for childcare. Sorry, only housekeepers can do this. Not gardeners or chauffeurs.
To qualify for the Child Care Credit, all parents must be “gainfully employed.” NOTE: A full-time student qualifies as being “gainfully employed.” Full-Time being defined as attending classes for at least five months out of the year. The months do not have to be consecutive. In the full-time student situation, there is an “imaginary” earned income equaling either $250 per month for one qualifying child or $500 for two or more qualifying children.
The best way to pay for child care costs is to take advantage of an employer provided flexible spending account (FSA). (If your employer offers one.) In this situation, you avoid federal income and payroll taxes. Unfortunately, funds used from an FSA do not qualify for computing the Child Care Credit, but any money you use over and above the FSA funds do qualify.
Did you hear? Psalm 127:4 says, “Like arrows in the hand of a warrior are the children of one’s youth.”
Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at BullisAndCo.com. Also on Facebook.