President Obama and Congress have yet to reach an agreement regarding the Fiscal Cliff. Many areas of the economy will be affected if we go over the Fiscal Cliff, one of them being a loss or lessening in certain tax breaks. Four of the tax breaks that will negatively affect parents’ financial state are the Child Tax Credit, Earned Income Tax Credit, Child and Dependent Care Credit and the American Opportunity Credit. Some families are at risk of losing money on more than one of the tax breaks, which will result in either the loss of thousands or owing thousands.
See below for the way each tax break will be affected if the country goes over the Fiscal Cliff:
1. The Child Tax Credit allows lower income families to claim up to $1,000 per every child under the age of 17. If the Bush and Obama tax cuts expire, the tax break will drop back to $500 and only extend to working families with three or more children. A family with only one or two children could end up paying $1,000.
2. The Child and Dependent Care Tax Credit allows working parents to claim up to $3,000 worth of expenses per child on up to two children. The parents could receive a maximum of 35 percent of this amount as a credit. If the Bush tax cuts expire, parents can claim up to $2,400 per child and receive a maximum of 30 percent as a credit.
3. The Bush and Obama administrations formulated the Earned Income Tax Credit, which allows married couples with a joint income below $50,270 and three or more children to receive up to $5,891. Obama also raised the maximum credit from 40 percent to 45 percent of earned income for families with three or more children. If the country goes over the Fiscal Cliff, the rate will fall back to 40 percent and the credit allotted by Bush’s Earned Income Tax Credit will drop approximately $5,000.
4. The American Opportunity Tax Credit was a part of Obama’s 2009 stimulus plan. The plan allows low-income families to claim up to $2,500 of credit for four years to help them pay for college fees. At the end of the year, Obama’s American Opportunity Tax Credit will expire and revert back to the Hope Credit, where the maximum credit will drop to $1,800 for only two years.
To read more on this story visit: http://money.cnn.com/2012/12/18/pf/taxes/parents-tax-breaks/index.html
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