We all know how resilient parents are – finding ways to save money so their children can have a brighter future and fewer financial worries in the future. The struggle is real and it feels different for everyone and is exacerbated by structural racism and gender inequality.
Many North Carolina residents are still grappling with employment, wage differentials and inflation as interest rates rise. With tax season upon us, here are some tax credit and savings account strategies that can help North Carolina families.
1. Children’s Savings Account also known as NC 529 plan
the Plan CN 529 offers a simple and tax-efficient way to start putting money aside for your child’s education. With easy online or paper registration, you can start saving with as little as $25. You can choose to contribute regularly or periodically and your friends and family can also contribute.
Just as there are no federal tax deductions for 529 plans, North Carolina also does not offer in-state tax deductions for contributions to NC 529 accounts. The incentive for 529 plans is that after-tax money grows without federal and state taxes and will not be taxed when money is withdrawn for education.
2. NC CAPABLE
Achieving a Better Life Experience (ABLE) accounts are designed for people with a disability before the age of 26. The NC ABLE program was launched in 2017 and allows eligible individuals to save and fund a variety of qualified disability expenses, while maintaining Medicaid, Social Security, and other public assistance. Parents of children with disabilities may have the opportunity to help save and pay for education expenses at K-12 schools through the use of an NC ABLE account. The NC ABLE program is overseen by the State Treasurer’s Department. Additional information can be found here.
Tax credits reduce your tax payable or the amount of income tax owed for the year. A refundable credit is paid to you even if you are not subject to tax, but a non-refundable credit is only fully refunded to you if you actually owe income tax. As a new intervention, there is are extended credits for families for 2021, many generally do not file.
Here is the detail of the tax credits:
3. Child Care and Dependent Tax Credit
If you had to pay for child care (or someone to care for a dependent who is not a child) so you could work or look for work, the dependent charge can reimburse your expenses. The credit is calculated based on your income and a percentage of the expenses you incur to care for eligible people so you can go to work, look for work, or go to school. The maximum credit is $3,000 if you had one dependent and $6,000 if you had more than one dependant. Learn more about how to claim the Credit for child care and dependent care here.
4. Child tax credit
the US rescue plan increased the amount of the Child Tax Credit (CTC), making it available to dependents age 17, fully refundable for most families, and possible for families to receive up to half of it, in advance, in monthly installments during the last half of 2021. (Monthly payments were not continued by Congress in 2022.) Families can get the credit, even if they have little or no income from employment, business or other sources.
To get the CTC, eligible families must file a return, even if they received monthly payments. Prior to 2021, the credit was worth up to $2,000 per eligible child. The law increased it to $3,000 per child for dependents aged 6 to 17 and $3,600 for dependents aged five and under. Learn more about how to claim CTC.
5. Earned income tax credit
The Earned Income Tax Credit (EITC) primarily benefits low-income taxpayers, but the income requirements and credit amounts depend on the number of children you have. For 2021 taxes, the EITC is worth up to $543 for people without children and up to $6,728 for people with three or more children. The EITC is fully refundable and people who would not normally have to file a tax return may still want to file a return just to claim the EITC. Learn more about how to claim earned income tax credit.
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