How To Claim Babysitting Income On Taxes – While many Baby Boomer grandparents are enjoying long-awaited retirement trips, rest and relaxation, many are once again raising a family. An increasing number of grandparents are becoming the primary caregivers of their grandchildren for a variety of reasons.
According to the last U.S. Census, more than 2.7 million households have grandparents raising grandchildren and more than 5.7 million grandchildren are being raised by grandparents (
How To Claim Babysitting Income On Taxes
, US Trade, Economics and Statistics Administration, October 2014, http://bit.ly/2b3HAL5). More than 60% of grandparents raising grandchildren are still in the workforce, and 22% of grandparents raising grandchildren earn below the poverty level (US Census Bureau, 2013 American Community Survey, http://bit.ly/2bA0GtS). By all indications, these numbers will continue to rise. Most grandparents are generally middle-class, but many are struggling to make decisions about raising grandchildren in the new “skip generation” environment.
America’s Best Kept Secret: The Employer Provided Childcare Tax Credit
Fortunately, several tax rules for grandparents in this situation help ease the financial burden on the grandchildren’s primary caregivers. This article discusses several of these opportunities. Additionally, the exhibit reviews various federal tax opportunities.
A grandparent can claim a dependency exemption for a grandchild as a “qualifying child” for income tax purposes if certain conditions are met. A qualifying child has to pass a number of tests, including-
In addition, the grandchild cannot be married filing a joint tax return, and must be a US citizen, resident of the US, or a resident of Canada or Mexico for part of the year. For wealthier grandparents, the exemption amount can be reduced or eliminated when adjusted gross income (AGI) reaches a certain level. In 2016, a grandparent can claim a $4,050 deductible for a qualifying grandchild. The $4,050 exclusion must be reduced by 2% for every $2,500 of AGI at a certain level. For married grandparents filing separately, the deduction begins to phase in at $155,650; for unmarried persons (except surviving spouses and heads of household), $259,400; for heads of household, $285,350; and $311,300 for married individuals filing jointly (Revenue Procedure 2015-53).
For married grandparents, adding a grandchild as a dependent does not change married joint filing status, which is already a very useful tax rate schedule. An unmarried grandparent raising a grandchild, however, can now claim head of household status, which offers greater tax savings than single filing. Note that the same tests for children (relationship, accommodation, age and support) must be met.
Steps For Filing Taxes As A Nanny Or Caregiver
A grandparent with earned income (ie still working) and a grandchild who meets the definition of an eligible child may meet the criteria for the Earned Income Tax Credit (EITC). Dependent exemption requirements must be met, avoiding the grandchild support test. The EITC refundable amount varies based on the grandparent’s AGI and the number of qualifying grandchildren. Items that may disqualify you for the EITC include married filing a separate tax return, no earned income, and no high income.
For example, Mary is in her early 60s and has a full-time job; She and her retired husband, Joe, are raising their 10-year-old grandson, Adam. In 2016, Mary and Joe file jointly and claim $18,500 in salary for Mary (earned income), $5,000 in taxable Social Security benefits for Joe (not eligible for earned income), and $200 in interest income (investment income, not earned income). Because Adam lived with his grandparents year-round and received 100% support, he is a qualifying child for EITC purposes. Based on the amount of earned income ($18,500), filing status (married filing jointly), and number of qualifying children (one), Mary and Joe qualify for the EITC.
A Child Tax Credit (CTC) of $1,000 is also available to grandparents and is refundable under certain circumstances. A qualifying grandchild must be under the age of 17, a U.S. citizen or resident alien, and qualify for the grandparent dependency exemption. The credit begins to phase out once the grandparent’s modified adjusted gross income (MAGI) reaches a certain level.
For example, Alison and Andrew work full-time and care for two granddaughters. All are US citizens. In 2016, the couple’s gross wage income was $120,000 and no other gross income. Both granddaughters qualified as under 17s and dependents in 2016. Because Alison and Andrew’s MAGI ($120,000) exceeds the $110,000 limit for married filing jointly, the maximum CTC for each qualifying child is reduced by $50 for every $1,000 over the $1,000 limit. As a result, the couple loses $500 in total credit, a CTC of $1,500. The CTC is generally not refundable, so the grandparent’s federal income tax can only be reduced, and no tax can be claimed. due to.
Babysitting Voucher Card New Baby Or First Birthday Greeting
A legal guardian is not a requirement of CTC. It’s also important to note that income from retirement pensions and Social Security benefits does not qualify as earned income for purposes of the EITC and CTC. The EITC and CTC do not affect other government benefits, such as food stamps, Social Security, or Medicare benefits.
A working grandparent who pays for the care of a grandchild under the age of 13 or a physically or mentally disabled grandchild may qualify for the Child and Dependent Care Credit (CDCC). The grandchild must live with the grandparents for more than half a year. Child care expenses that qualify for the credit are up to $3,000 for one child and $6,000 for two or more children. CDCC is calculated at the rate of 20-35% of the cost amount (after applying the earned income limit). This is also a non-repayable loan.
For example, Amy works part-time to care for her 7-year-old grandson, John. In 2016, Amy reports $14,000 of AGI, all of which is earned income. Amy also paid $3,600 for after-school care so she could go to work. John meets all the requirements as a dependent, and Amy can claim a total credit of $1,050.
For grandparents who itemize exemptions, medical and dental expenses paid on behalf of the grandchild during the year are deductible. All medical expenses of grandparents and grandchildren are added together and are allowed to the greater of 10% of AGI or 7.5% of AGI for grandparents age 65 or older. These amounts also include the unreimbursed expenses of a grandchild attending a “special school” for a neurological or physical disability.
How To Take Advantage Of The Expanded Tax Credit For Child Care Costs
Grandparents who pay for dependent grandchildren’s college education expenses may qualify for two possible education tax credits: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). AOTC (100% of the first $2,000 and 25% of the next $2,000) related to the grandchild’s qualifying expenses for the first four years of undergraduate college education (a portion of which is refundable), LLC (20% of the first $10,000) at “eligible educational institutions” ” relating to eligible expenses for any post-secondary education. Again, the loan amount depends on the grandparent’s MAGI. In 2016, the AOTC phase-out is $160,000 to $180,000 for married filing jointly and $80,000 to $90,000 for other filing statuses. LLCs are reduced by $110,000 to $130,000 for married filing jointly and $55,000 to $65,000 for other filing statuses. Note that married grandparents filing separately do not receive any credit.
For example, Amber filed a federal income tax return as head of household for 2016, reporting two eligible dependent grandchildren, James and Jason. In 2016, James paid $3,000 in tuition to James University, an undergraduate, and $1,000 to Jason, a college graduate, to take an advanced Excel training course at a local college to improve his employment prospects. Amber’s 2016 MAGI totaled $60,000. Both institutions qualify.
The entire $3,000 tuition paid to James is a qualified education expense for AOTC purposes, and Amber can claim a $2,250 credit. Amber cannot take AOTC for Jason who has completed his undergraduate education; However, she can credit the LLC $100 (reduced from $200) for her training because Amber’s MAGI falls within the income limits for head of household.
A possible alternative is the AGI deduction above interest on qualified education loans. This amount will pay up to $2,500 in interest on qualified student loans. Grandchild must be enrolled in college at least half-time. Again, for high-income grandparents, the ability to take this deduction phases out once MAGI reaches a certain level.
Is Summer Camp Tax Deductible?
Internal Revenue Code (IRC) Section 2503c(1) provides the ability to make an unlimited, tax-free “qualified transfer” directly to an educational institution; It is not treated as a gift for gift tax purposes.
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