The Tax Man Cometh - How Your Baby Can Help

Your children are the biggest investment you’ll ever make. Forget real estate, or prospective gold mines. Those can’t compare to the lifetime costs of feeding, clothing, educating, entertaining and providing for the health and well being of a child. Obviously they’re worth it, regardless on any ‘return’ on your investment. Besides, the returns are intangible, and essentially, priceless.

But the financial burden of bringing up baby is entirely tangible. Fortunately, our government recognizes this huge drain on parental resources, and it’s willing to cut you some slack on your taxes. Think of it as a society’s ‘thanks’ for producing productive contributors to society.

The Child Tax Credit for 2000 returns

The good news: Each child in your family is worth $500 off your final tax bill, (with certain restrictions.) Namely; each child must have been 17 or younger as of 12/31/00; you must be able to claim each qualifying child (whether he is a foster child, stepchild or descendent) as a dependent on your tax return; you must also have a social security number for each dependent you intend to claim; and you must file either form 1040 or 1040A. You will not be able to claim the credit if you file 1040EZ.

The bad news: Certain higher income couples will receive reduced credits, or no credit at all. Specifically, the total Child Tax Credit for married couples filing jointly is reduced by $50 for each $1,000 that Modified Adjusted Gross Income exceeds $110,000. For singles, heads of households, or widow(ers) the cut-off is $75,000. For those who are married, but filing separately, the cut-off is $55,000.

To figure the credit that applies to your family, follow the instructions and use the worksheet in form 1040 or 1040A. For additional information, you may view IRS Publication 17 (‘Your Federal Income Tax, Child Tax Credit, Claiming the Credit’), or visit the IRS’s Website at www.irs.ustreas.gov.

For those with three or more qualifying children, additional credits may apply. The amount will depend on the Social Security and self-employment taxes (if any) that you’ve paid, and any Earned Income Tax Credit you may receive. For more information, see IRS Form 8812. It’s interesting to note, especially for low-income taxpayers, that the additional child tax credit may provide a refund even if you don’t owe any tax.

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