07 Aug Advice For Parents When Your Child Is No Longer A Tax Exemption
As parents, it has been a dream to be eligible for tax refunds from having children under age 17. In 2018, parents were able to claim $2,000 in child tax credit for their children. The child tax law applies to children under 19, or full-time students under 24 years of age. In fact, even if your children are above the age limit, they may still be eligible for tax exemption if they do not earn over $4,000 a month and do not provide over half of their own support. However, some children advance much more quickly than others, and cease being eligible for tax exemptions at a relatively young age. That is when we must take another look at the dependency worksheet.
Calculating The Child’s Household Contribution
For illustrative purposes, let us consider the hypothetical case of an 18 year old boy, Tim. He spends his after-school hours and weekends working at a sports shop, and earns a minimum wage salary plus commission on sales. Tim’s sales are impressive, and he made $13,000 in the past year.
Now to calculate Tim’s household contribution, we factor in the number of people in his household. Tim lives with his two siblings and parents, as well as his grandmother and grandfather. Assuming that the household expenses, utility bills, and fair rental of the home amount to roughly $40,000 a year, that makes $6,667 per person per year. Adding to that is an estimated $12,000 for Tim’s personal expenses for recreation, holidays, medical expenses not covered by insurance, insurance premiums, and so forth, bringing Tim’s total share of household expenses to $18,667 per year.
Unless Tim’s parents can prove that Tim’s earnings of $13,000 that year went to savings or investments, it will count as money spent on his own support. If Tim makes significant purchases, he may himself be eligible for a large tax refund – but his parents would have lost their allowable credits and deductions as he contributes more than half of his share of annual support.
If The Child Is In College
As another example, let us consider Alice, a 20 year old who has gone to college. College adds a greater financial strain on Alice’s parents, with private tuition and rental payments. Alice takes on a part time job during her college term. If Alice earns a substantial sum of money doing her part time work, her parents will also lose the dependency exemption. Furthermore, if Alice qualifies for financial aid and reduces the private tuition costs, her parents will also lose the educational tax credit.
Get Professional Advice
Every child is different, and every child tax exemption case is also unique. Sit down with a professional who can work through the calculations for you and your family. Tax Defense Partners is the nation’s leading company focusing exclusively on helping settle tax debts, and we take their work very seriously so that our clients will be satisfied. Chat with us to find out more!