Tax season is right around the corner. Before you know it, we’ll all be holed away in some corner of our house punching numbers into our computers as we try to squeeze a few more of our dollars back from the IRS. That’s a task that might get a bit harder for some parents this year.
According to this CNN Money report, on January 1, 2013, several tax credits are set to expire. And, unless Congress manages to pull it’s collective head out of a dark place and extend those credits, many of our tax returns will be quite a bit heavier come April. For parents, specifically, this could cause quite the burden.
Specifically, the Child Tax Credit, Earned Income Tax Credit, Child/Dependent Care Credit, and the American Opportunity Credit will expire.
- The Child Tax Credit would be reduced to $500 per child, instead of the $1000 it’s currently at, and would no longer mean a refund of any excess credit above and beyond tax liability. It’s debatable whether it should be giving that excess credit as a refund, but I’d certainly like to see them keep the credit at the $1000 number. This is one that we use on our taxes every year, and I know it’s been quite beneficial.
- The Earned Income Tax Credit will have several of it’s key income thresholds reduced back to previous thresholds. The maximum credit will also be reduced by 5%. I believe we exceed the threshold for this one, but reducing the thresholds will eliminate it for quite a few families.
- The Child/Dependent Care Credit, like the EIC, would see several of the maximum credit and reportable expense reduced. This is one that I know we’ve used every year, since we’ve always had some sort of child care expenses. Could mean a significant loss of credit on our tax return.
- The American Opportunity Credit is a credit that replaced what was called the Hope credit. It allowed for a higher amount of credit and for some of the credit to be refundable to the tax filer. If it expires on January 1, it will revert back to the hope credit which means the credit will be reduced by $700, and also reduced to something that can be claimed 4 years to something that can be claimed only 2 years. The Hope Credit is also a non-refundable credit, so if you have no tax bill, it doesn’t mean a larger refund like the American Opportunity Credit would. Again, I don’t necessarily agree with the refundability of credits, but this could mean a huge difference for some families still paying for college expenses. I’ve never been able to use it since I was well out of college when it was put into place.
That’s just four of the parts of the tax code that are set to expire on January 1 if Congress doesn’t act on it. In a Presidential election year, you can bet they won’t make any moves on it until after election day, so they’ll have a very short window in order to get something done. I truly doubt that they’d let them all expire, but depending on the outcome of the election, it could be a pretty dirty fight.
How many of you have used these credits? Would their loss on January 1, 2013 change your tax bill considerably?
I started this blog to share what I know and what I was learning about personal finance. Along the way I’ve met and found many blogging friends. Please feel free to connect with me on the Beating Broke accounts: Twitter and Facebook.
You can also connect with me personally at Novelnaut, Thatedeguy, Shane Ede, and my personal Twitter.
Money Beagle says
The $1,000 per kid credit is definitely nice. I can see where they will at some point have to reduce it as we can’t keep up with all these credits in the face of rising deficits. The one that I think will hurt the most is if they let the payroll tax cut (the 2% reduced to Soc Sec) expire. I was never really in favor of it because I knew it would be one of those things that would be hard to just let expire, and now look what’s happened.
Lance @ Money Life and More says
It will be interesting to see what happens for sure. If Romney ends up winning some deductions may get reduced too, but at the same time if you’re paying a lower tax rate you’ll need less deductions to pay the same tax bill… in theory haha taxes are ever fluid. I totally know why CPAs get paid so much because I used to have to deal with this crap!