Nearing the end of my pregnancy, I know that planning to have kids is not solely based on finances. And yet I even scared myself with my recent article on the expenses of parenting!
There are many benefits to having kids, such as the joys of watching a child explore the world and receiving their unconditional love. In this article, though, I specifically want to discuss the financial benefits you can access only by having kids.
Tax Credits and Deductions
Having dependents can positively affect your taxes. If you have a child under the age of 17 who you claim as a dependent, you may be eligible for a credit of up to $1,000 per child. You may also be able to receive a credit for childcare for up to $3,000 for one dependent and $6,000 on more than one.
Finally, if you adopted in the last year, you may be eligible for an adoption tax credit. The maximum of that credit was $13,400 per child in 2015. Speaking with a qualified tax professional may help you if you are unsure.
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529 College Savings Plan
Parents who know they will contribute financially to their children’s college education have the opportunity to open a 529 plan. It's a savings plan designed specifically for college expenses. You may decide to open either a pre-paid tuition plan or a college savings plan.
With a pre-paid plan, parents can pre-pay for credits at participating colleges and universities. This locks in the price of tuition. Since college costs are only rising, this is a great option for parents who want to pay for college ahead of time. At the same time, there are some limitations. You have to be a resident of the state, and there may be age limits for the child. Additionally, you may be restricted to enrolling at specific times during the year.
The college savings plan does not lock in the price of college. But you can cover any qualifying expense, including tuition, room and board, fees, and even books and computers. There is an upper limit of $200,000 for contribution, and no age or state residency limits.
For more information, check with your tax professional and take a look at the Securities and Exchange Commission (SEC) website.
Some employers will offer special health savings accounts that allow a two-parent household to save up to $5,000 before taxes to pay for childcare. The amount is taken out of your paycheck automatically. Then you can receive a reimbursement using detailed receipts.
The benefit to using this option is that the money is taken out pre-tax. Therefore you won’t need to pay taxes on it once you are reimbursed. If you spend less than the amount that you pre-determine for your flex spending account, you will have to forfeit the rest. So be careful about the amount you choose to take out of your paycheck.
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Increase in Income if You’re a Man
While I mentioned that being a mother decreases income, being a father positively affects income. It increases by more than six percent, according to Michelle Budig, a researcher at the University of Massachusetts, Amherst.
Cultural bias against women is one of the reasons for the gap in pay between mothers and fathers. In another study, survey respondents were asked how much they would pay applicants who were mothers or fathers.
Fathers were offered $13,000 more than mothers and $2,000 more than women without children.
The last point doesn’t help my situation, as I am in a same-sex relationship. But we intend to take advantage of as many financial benefits as we can. Even so, I personally wouldn’t avoid having children just because of the financial burden – my spiritual and emotional reasons for having them take precedence.
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