Children can be costly, but certain tax credits can help
With gas prices on the rise and affordable housing being not so affordable, we all know how expensive it is to live here in Hawaii. This can be especially true for families with small children or those thinking of starting a family.
The fact is children are expensive. The good news is there are tax benefits of having children, easing the financial cost of raising them.
You can receive an additional federal personal exemption of $3,400 in 2008 ($3,500 in 2009) for every qualifying child being claimed. The Hawaii exemption amount is $1,040. This exemption can reduce your taxable income, which means you pay less tax or you receive a bigger tax refund.
Taxpayers can receive a child tax credit of $1,000 (through 2010) per qualifying child.
A qualifying child consists of a son, daughter, stepchild, foster child, brother, sister, stepbrother, step sister, or descendant of any of them.
There are a few requirements, such as they must be under the age of 17, or they can be any age if they are permanently or totally disabled; you must have provided more than half their support for the year; they must live with you more than half the year; and they must be a U.S. citizen, a U.S. national or a U.S. resident alien.
Adopted children are treated as your own children for the child tax credit.
You, as the taxpayer, also have requirements that must be met: If your income is above a certain amount, you will not be eligible for this credit. If you are married filing jointly, this amount is $110,000 and above. If you are single, head of household or qualifying widow(er), it is $75,000 and above. If you are married filing separately, it is $55,000 and above
Besides the child tax credit, there is the child care credit. This credit is intended to help parents who have licensed child care while they are working or seeking work. The requirements are that the child must be under 13 years of age or mentally or physically incapable of self-care in order to qualify for this credit. The credit is limited to the lowest amount of actual amounts paid for the care, $3,000 maximum (or $6,000 if there is more than one qualifying child), or the taxpayers earned income.
A similar credit is available for Hawaii residents subject to Hawaii income limitations and other qualifications.
The education credit includes tuition, books, supplies, and student activities and is for dependents enrolled at least half-time in college and are under the age of 24.
Scholarships, financial aid, and any tuition assistance reduce this credit. For the first two years of college, the student may qualify for the Hope credit, which allows up to a $1,650 credit. Additionally, the Lifetime learning credit allows a maximum $2,200 credit for students after two years of college.
The adoption credit is available for adoption fees, court costs, attorney fees and traveling expenses. The current maximum credit limit is up to $11,390, making adoption more affordable.
These credits can be claimed on your individual tax return. While the true joy for parents is seeing their keiki healthy and happy, these child-related tax benefits can help ease the financial cost of raising keiki here in Hawaii.
Doreen Griffith is managing partner of Grant Thornton LLP in Honolulu. She can be reached at Doreen.Griffith@gt.com