Tax Withholdings

Over the course of 2016, the growth of employee tax withholdings, as well as the growth of payroll taxes being withheld by the government, has increased over a steady rate this year. Compared to last year, these withholdings have increased up to 4%.

So how is this good for you, as a worker?

The increase in tax withholdings gives insight onto two noticeable benefits. The first is that when taxes increase for workers, both individually and as a whole, a steady wage inflation takes place. Basically, workers are getting paid more money now versus previous years. This means the economy is showing a significant growth in employment.

The second benefit that is noticed through higher taxes from workers will be their refund amounts. With higher taxes and withholdings, the more workers can expect back in the beginning of the year after they file taxes. Most people fall within the tax bracket to get a return back, so filing more money in advance can reassure you have paid all your taxes. Increasing your withholdings can also be a little investment savings annually.

Although paying higher taxes seems detrimental at first, it can be more beneficial for workers than they realize. With a constant inflation in the economy, we can expect workers to pay even more in the following years in taxes.

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Learn About Care Credits

Care credits work to assist parents with the expenses of raising a family. The money received varies in relation to the parent’s income. With one child or dependent, the taxpayer is qualified for a tax credit of up to $3,000, with two or more dependents $6,000.

Find Out If You Qualify

Some of the qualifying factors for the care credit are: being the main caretaker, the child must be under 13 years old or disabled, and the caretaker cannot be a parent of the child. Research what qualifying factors you can fulfill when considering the child and dependent care credit.

Discover What Types of Camps Qualify

Determining a summer camp for your dependent should involve seeing if the camp qualifies for the care credit. Even if the program is a sports camp it can still qualify if the time occurs when the parent is at work or in search for work. Camps where kids stay overnight do not qualify toward the tax credit.

Conclusion

When worried about the cost of summer camp, remember the tax breaks involved with the child and dependent care credit. Using this credit can help to increase your refund and give you money to spend on other childcare expenses.

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What is a 401(k)?

A 401(k) is an employer-sponsored retirement plan. Money from your paycheck is contributed towards your account with pre-tax money. This means that you won’t be taxed on the income put into your account the year you are paid for it.

How Much Can I Contribute?

In 2015, employees were allowed to contribute up to $18,000 of pre-tax income to their 401(k). This amount is around $12,000 more than those who own both a traditional or Roth IRA account. Employees can put in double the amount of money over those with IRA accounts because taxes aren’t paid on the money until the taxpayer is 59 ½ years old.

Early Distribution

Withdrawing before the required age will leave a 10% penalty on your account, taking a good chunk of money out of your 401k. If the taxpayer retires or is fired from their job after the age of 55 they are allowed to dip into their 401(k) fund without the penalty.

Closing Thoughts

When the contributions of your 401(k) are paid through pre-tax capital, your employer will not include these figures in your taxable revenue for the year. Your 401(k) not only reduces your income tax but also increases your take-home pay since your chargeable income is less than your actual salary.

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