We all know how resilient parents are — finding ways to save money so that their children can have brighter futures and less financial worries in the future. The struggle is real and it looks different for everyone and is exacerbated by structural racism and gender inequalities.
Many North Carolinians are still struggling with employment, wage gaps, and inflation, while interest rates are going back up. 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 the NC 529 Plan
The NC 529 Plan provides a tax-advantaged, straightforward way to start putting money aside for your child’s education. With easy online or paper enrollment, you can start saving with as little as $25. You can choose to make contributions regularly or periodically and friends and family can contribute too.
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 free of federal and state taxes and will not be taxed when the money is taken out for education.
2. NC ABLE
Achieving a Better Life Experience (ABLE) accounts are designed for those with the occurrence of a disability before the age of 26. The NC ABLE Program was launched in 2017 and allows eligible individuals the opportunity to save and fund a variety of qualified disability expenses, while maintaining Medicaid, Social Security, and other public support. Parents of children with disabilities may have an option 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 Department of the State Treasurer. Additional information can be found here.
Tax credits reduce your tax liability, or the amount of income tax owed for the year. A refundable credit is paid to you, even if you have no tax liability, but a nonrefundable credit only pays out in full if you actually owe income tax. As a new intervention, there are expanded credits for families for 2021, many may not typically file.
Here’s a breakdown of tax credits:
3. Child Care and Dependent Tax Credit
If you had to pay for child care (or for someone to care for a non-child dependent) so you could work or look for work, the dependent care credit can reimburse your expenses. The credit is calculated based on your income and a percentage of expenses that you incur for the care of qualifying persons to enable you to go to work, look for work, or attend school. The maximum credit is $3,000 if you had one dependent and $6,000 if you had more than one dependent. Read more about how to claim the Child and Dependent Care Credit here.
4. Child Tax Credit
The American Rescue Plan increased the amount of the Child Tax Credit (CTC), making it available for 17-year-old dependents, fully refundable for most families, and possible for families to receive up to half of it, in advance, in monthly payments during the last half of 2021. (The monthly payments were not continued by Congress in 2022.) Families can get the credit, even if they have little or no income from a job, business, or other source.
To get the CTC, eligible families must file a return, even if they received monthly payments. Before 2021, the credit was worth up to $2,000 per eligible child. The law increased it to as much as $3,000 per child for dependents ages six through 17, and $3,600 for dependents ages five and under. Read more about how to claim the 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 how many children you have. For 2021 taxes, the EITC is worth up to $543 for people with no children and up to $6,728 for people with three or more children. The EITC is fully refundable and individuals who would not normally have to file a tax return may still want to file a return just to claim the EITC. Read more about how to claim the earned income tax credit.
Need help filing your taxes this year? Check out GetYourRefund.org, a nonprofit service for free tax filing, made simple.