Article Highlights: Special Tax Birthdays Birth of a Child o Qualifying Child o Child Tax Credit o Child Care Credit o Earned Income Credit Qualifying Relative U.S. Savings Bonds Used for Education Expenses ABLE Account Retirement Plan Catch-up Contributions Retirement Plan Distributions o Public Safety Employees o Early Distributions Social Security Benefits Taxation Additional Standard Deduction Qualified Charitable Distribution Required Minimum Distributions Longevity Annuity When Congress enacts tax laws, many times whether the law applies is based on the age of the taxpayer or a taxpayer’s dependent. Reaching a certain age sometimes provides a tax benefit, while in other cases there’s a tax “penalty” – meaning that a specific type of income becomes taxable, or a credit no longer applies. Most of these age-related tax rules concern dependent children or retirement plan contributions or distributions. If you or a member of your tax family is having one of these special birthdays this year, you may be interested in knowing how your taxes will be affected, so here are some birthdays (or half-birthdays in a couple of cases) that have tax significance, listed by the age as of the birthday: 0 – “Zero” in this context means the birth of a child. In tax lingo, when you have a “qualifying child” you are entitled to claim that child as your tax dependent, which will then make you eligible to claim certain tax credits. A qualifying child is an individual who meets the following tests: (1) Has the same principal place of abode (residence) as you for more than half of the tax year. Exceptions include the year of birth and temporary absences; (2) Is your son, daughter, stepson, stepdaughter, brother, sister, stepbrother, stepsister, or a descendant of any of these individuals; (3) Is younger than you are; (4) Did not provide over half of his or her own support for the tax year; (5) Is under age 19, or under age 24 in the case of a full-time student, or is permanently and totally disabled (at any age); and (6) Was unmarried (or if married, either did not file a joint return or filed jointly only to claim a refund). For a newborn child, the “half the year” requirement of (1) doesn’t apply if your home was the child's home for more than half of the time he or she was alive during the year. So, in most instances, if you welcomed a baby into your family this year, even if the child was born on December 31, 2022, the child will be a qualifying child and your dependent for 2022, and you may be able to claim one or more of the following tax credits: Child Tax Credit – The child tax credit is $2,000 per child for 2022. If the credit is not entirely used to offset your tax, the excess portion of the credit, up to the amount that your earned income exceeds a threshold ($2,500 for 2022), but not more than $1,500, is refundable. The credit begins to phase out at modified adjusted gross incomes (MAGI) of $400,000 for married joint filers and $200,000 for other filing statuses. The credit is reduced by $50 for each $1,000 (or fraction of $1,000) of modified AGI over the threshold. See also “17” below. Child Care Credit - If you use the services of day care providers to look after your dependent child, you may qualify for a tax credit if the expense is an “employment-related” expense, which is one that you or your spouse, if married, incur to work, or look for work. Married couples must file jointly, and both spouses must work (or one spouse must be a full-time student or disabled) to claim the credit. The qualifying expenses for the credit are capped at $3,000 per year if you have one qualifying child, while the limit increases to $6,000 per year if you have two or more eligible children. However, the qualifying expenses are limited to your income from working and, if you are married, the expenses are limited to the lower of your or your spouse’s work income. An exception applies when one spouse has no actual income from working and that spouse is a full-time student or disabled. In that case the nonworking or student spouse is considered to have a monthly income of $250 (if there’s one qualifying child) or $500 (for two or more qualifying children). The credit is computed as a percentage of qualifying expenses with the credit rate ranging from 35% for those with AGI of $15,000 or less to 20% if AGI exceeds $43,000. The credit will reduce your tax bill dollar for dollar, but if the credit is more than your tax, the excess credit is not refundable. See also “13” below. Some employers provide dependent care assistance programs to help their employees with the cost of daycare. If you participate in such a plan and use payments from the plan to pay childcare expenses, the payments are excludable from your income, up to the lower of your earned income (or if you are married, the earned income of your spouse if it is lower) or $5,000 ($2,500 for married filing separate). Because reimbursement up to these limits is excludable from your income, it is treated as reimbursement for day care expenses that reduces the $3,000 or $6,000 expense limits when computing the credit. Reimbursement more than these limits is taxable to you and does not reduce qualified expenses for the credit. Earned Income Tax Credit (EITC) - If you have income from working either as an employee or a self-employed individual, you may qualify for this refundable credit. The credit is based on three factors: your earned income, AGI, and how many qualifying children you have. If you have investment income such as interest and dividends more than $10,300 (for 2022), you are ineligible for this credit. The credit was established as an incentive for individuals to obtain employment. It increases with the amount of earned income until the maximum credit is achieved and then begins to phase out at higher incomes. The table below illustrates the phase-out ranges for the various combinations of filing status and earned income and the maximum credit available. Although the EITC is available for lower-income taxpayers without children, the credit increases substantially for those with children. 2022 EIC PHASEOUT RANGE Number of Children Joint Return Others Maximum Credit None $15,290 - $22,610 $9,160 - $16,480 $560 1 $26,260 - $49,622 $20,130 - $43,492 $3,733 2 $26,260 - $55,529 $20,130 - $49,399 $6,164 3 or more $26,260 - $59,187 $20,130 - $53,057 $6,935 13 – In the year that your child turns 13, only the day care expenses you paid for the child for the part of the year when he or she was under age 13 qualify for the Child Care Credit. 17 – You can no longer claim the Child Tax Credit on your return starting for the year that your child is 17 at year’s end. So, for the year of your child’s 17th birthday, no Child Tax Credit is allowed for that child. 18 – The year in which your child has their 18th birthday is the last year that the child is considered a qualifying child, unless the child is a student and under age 24. To qualify as a student for this purpose, during some part of each of any 5 calendar months of the year, your child must be: A full-time student at a school that has a regular teaching staff, course of study, and a regularly enrolled student body at the school; or A student taking a full-time, on-farm training course given by a school described in the prior bullet, or by a state, county, or local government agency. The 5 calendar months don’t have to be consecutive, and a full-time student is a student who is enrolled for the number of hours or courses the school considers to be full-time attendance. If your older child isn’t a student under this definition, you might still qualify to claim the child as a dependent, but not as a qualifying child. The term for this type of dependent is “qualifying relative,” even though some individuals can qualify without being related to you. Three tests must be met before you can claim someone as your dependent if they aren’t a qualifying child: A. Member of Household or Relationship Test – To meet the member of the household test, an individual would have to live with you all year in your household. But under the “or relationship” part of the test, your child would satisfy this test just by being your child, foster child, or stepchild, even if not living with you. Other relatives, such as your siblings, parents, grandparents, and others, could also meet this test. B. Gross Income Test – To satisfy this test, your child (or other individual who might be a qualifying relative) can have no more than $4,400 (2022) of gross income for the year. C. Support Test – You would need to provide more than half of the cost of the individual’s support. So, for example, if you wanted to figure whether you provided more than half of your 19-year-old non-student child’s support, compare the amount you contributed to your child’s support with the entire amount of support he or she received from all sources, including the support the child provided from their own funds.