Low income families might get an unpleasant surprise come tax time in 2013. A handful of tax breaks for parents may expire on Jan. 1, 2013 if Congress doesn’t make a move by year’s end.
Tax credits that provide financial relief to struggling families including the Child Tax Credit, the Earned Income Tax Credit, Child and Dependent Care Credit and the American Opportunity Credit could be reduced or disappear altogether, CNN reported.
The tax returns and payments of millions of families are contingent upon whether Democrats and Republicans can come to an agreement on extending tax credits or if they stall until after the election.
The Child Tax Credit allows married couples with household incomes less than $110,000 and single parents earning less than $75,000 to claim $1,000 per child under age 17. A family with three children could lose up to $1,500 in credits. This credit was doubled to its current amount by the Bush Administration’s Tax Relief Reconciliation Act, and the Obama Administration extended the credit until the end of this year. If the tax credit expires, the refund will be reduced to $500.
The Child and Dependent Care Tax Credit helps working parents who pay for childcare services by offering a maximum credit of $6,000 for childcare expenses, or up to $3,000 per child. If the tax credit is not extended, the per child limit could revert to pre-Bush levels of $2,400 per child and a maximum of $4,800 per family.
The Earned Income Tax Credit benefits both families and low-income married couples without children. Married couples earning less than $50,270 with three or more children can save up to $5,891 in 2012, but if the credit isn’t renewed, families could lose up to $600. Married couples making less than $19,190 can qualify for a maximum of $475, but that may drop to the same credit for unmarried taxpayers.
American Opportunity Tax Credit was designed to help low-income families pay for college by claiming up to $2,500 each year for four years. The credit is 40% refundable, which allows families to get a refundable $1,000 in cash. That credit is set to expire at year’s end. If it is not renewed, families would only be eligible for a $1,800 credit for two years, and they will not be able to get any of that refunded in cash.