A close friend of mine is expecting the birth of their first child towards the end of this year. His wife has an estimated due date of Dec. 29. My advice to them? If you were planning on scheduling a December c-section or inducement, better schedule it now before all of the appointment slots get booked!
Why?
The difference between a December 31, 2012 birth and a January 1, 2013 birth could cost them $1,000 of additional tax liability. And since the child tax credit is scheduled to drop from $1,000 to $500 in 2013, they may never see a $1,000 credit again.
Here’s a bit of history on why this is happening.
The Child Tax Credit Drops in 2013
As part of the Obama tax cut deal reached with Republicans, the previous Bush tax cuts that raised the Child Tax Credit to $1,000 from $500 were extended through 2011 and 2012.Without further extension (an agreement seems unlikely at this point, but you never know), the child tax credit drops back down to $500 in 2013.
What is the Child Tax Credit?
For those looking for a little more background, the Child Tax Credit allows you to claim a maximum $1,000 per qualified child (as noted, that drops in 2013 to $500).
This is a non-refundable income tax credit, meaning that if your credit exceeds your income tax liability, then you won’t get a check for the difference.
Still, non-refundable credits are great, because they represent a subtraction from your actual tax liability, which is much more valuable than a deduction (which is only a subtraction from your taxable income).
However, if your income is below a certain threshold, you can also claim the ‘Additional Child Tax Credit‘, which allows you to get a refund for the difference if your credit exceeds your tax liability.
Can you Claim the Child Tax Credit in the Year the Child was Born?
What if the child was born in the second half of the year, or even the last day? Can you still claim the child tax credit for that year?In short, yes. Publication 972 lists this as one of the exceptions in which you can claim the credit.
Child Tax Credit Income Levels & Qualifying Criteria
The Child Tax Credit is limited if your MAGI is above a certain amount. The amount at which this phase-out begins varies depending on your filing status. For married taxpayers filing a joint return, the credit phase-out begins at $110,000. For married taxpayers filing a separate return, it’s at $55,000. For all other taxpayers, the phase-out begins at $75,000.According to the IRS Child Tax Credit FAQ, a qualifying child for this credit is someone who must also meet the qualifying criteria of six tests: age, relationship, support, dependent, citizenship, and residence. So you’ll want to double-check that your child qualifies before filing for the credit.
There are also tax credits for child care you may want to look in to.
Deep Thoughts by G.E. Handy
So, let me first state that I would not recommend anybody schedule an early inducement or c-section for a January estimated due date just to be able to shave off $1,000 in tax liability. But for those due in mid or late December, holding off until January could cost you $1,000! And that’s why I’d expect a near record number of births the last week of this year, moreso than previous years.And to that point, it got me thinking some crazy thoughts…
You would have to assume those that are aware of this special tax scenario are on top of their finances. And they are probably fairly intelligent, or well educated on top of that. Which makes me wonder:
Do babies born in the last week of December have a higher average IQ than those born in other weeks of the year?
What is the average income of the households they are born into vs. other weeks of the year?
Ponder those deep thoughts for a moment…
source: 20somethingfinance.com
