How Will the Obama Middle Class Tax Credits Benefit You?
President Obama is announcing several tax credits for the middle class in his State of the Union speech. Here are some of the details on what the proposals are, and how those who qualify can get the most out of the credits.
The Child and Dependent Care Tax Credit will increase from 20% to 35% of qualifying expenses for families making under $85,000 a year. The credit decreases to 20% for families making up to $115,000. Families could claim up to $3,000 in expenses per child for up to two children. This means that a qualified family that claims the max amount of $6,000 in expenses will see a tax deduction of $2,100 instead of $1,200. It also means that for some families it would become more financially prudent to claim the Dependent Care Tax Credit instead of funding a dependent care flexible spending account with the maximum of $5,000. This tax credit is not refundable so those who do not pay taxes will not receive it.
The Saver's Credit will become refundable and expanded. Currently the credit ranges from 10 to 50 percent on the first $2,000 of contributions people make to a 401(k), IRA, or other qualified retirement plan. The maximum credit is $1,000 for an individual and $2,000 for a married couple. The current income limit for receiving this credit is $55,500 for a married couple. The new proposal would allow couples making up to $65,000 a year get a 50% credit on the first $1000 they each contribute for a maximum of $500 of credit per person. Couples making up to $85,000 would get a partial credit. If this credit were made refundable then those who do not make enough to pay taxes will benefit the most when they save at least $1,000 a year since they will be guaranteed a 50% match from the government.
Obama's middle class task force also proposed several other initiatives relating to student loans and automatic IRAs. The final tweaks to the tax code will still need to be approved by Congress and signed into law, but I personally think that these changes are too specific and will not affect a great amount of people significantly. Nevertheless, those who qualify for the tax credits could stand to gain a maximum of a couple of thousand dollars a year.
What do you think? Will you benefit from these tax changes? Will these tax credits save middle class America?