Child care tax deduction and the Dependency Exemption
Child care tax deduction is a policy that gives you yet another reason to keep your family tree growing. There are many tax savings that you may be entitled to because of your new bundle of joy. Some of the benefits are:
(a) Supplementary exemption called Dependency Exemption
(b) Child Tax Credit
(c) Child and Dependent Care Credit
(d) Tax deduction, by transferring revenue to the child.
Dependency Exemption: This is a form of personal exemption and it reduces your tax bill by subtracting the necessary amount from your gross income directly proportional to the annual inflation. This exemption should meet the following criteria:
• The child (dependent) must be living at your residence throughout the year or he/she must be a relative.
• The dependent’s gross income must not exceed the annual exemption amount. This clause, however, does not apply to children who are less than 19 years of age or are full-time students whose age is less than 24 years.
• The taxpayer must support at least half the dependent’s total cost of living.
• The dependent must be a resident of the US, Mexico or Canada.
