Taxes are one of those subjects that many are ignorant about yet they significantly affect finances and life in general. If you are like most smart people, you are already looking for ways to ease the financial burdens owing to the rising costs of living, and paying more taxes than you have to should not be the norm. Depending on your circumstances, you may be entitled to rebates, tax relief, tax credits and tax free income. But in order to benefit from all these you need to understand how the tax system works. Here is a brief guide on what you need to know about tax credits.
What Are Tax Credits?
Tax credits are benefits given by the state to people who are taking care of children, those who are disabled, as well as those who are on low incomes. These tax benefits are largely categorized into two:
Child tax credits
Working tax credits
Tax credits, which are amounts of money given by the state, are not subject to taxation. Additionally, the credits are not dependent on the National Insurance Contribution or previous tax remittance history. Qualifying for the credits depends entirely on your circumstances and your income.
Child Tax Credits
These are benefits that are available to anyone who has children to help with the costs of raising a child but are on no or low income. Other qualifications for child tax include:
Low income with dependent children
You are a single parent
You are a couple with a qualifying young person or child and you work 24 hours a week, or one of you works for more than 16 hours a week
Low-paid job for at least 16 hours every week
If you are 16 years old and above
If you have a disability
Satisfy residence and presence tests
Should not be subject to immigration control
Child tax credits are not a preserve of the poorest families. All households with up to £50,000 annual income can apply for the credits if they have at least 3 children. For couples, a joint tax credit claim is required (no one can claim as a single person). In cases of separation, the money should go to where the child lives.
How Much Child Tax Credit Can You Get?
The tax credit comes on 2 bits:
Family element which is up to £545 annually
Child element which is up to £2,690 annually for each child
Families with new babies can get up to £545 in the first year and a further £2,950 for disabled children with an extra 1,190 for severely disabled kids
Working Tax Credit
These are tax credits that are designed to benefit people of low incomes. These credits are wholly dependent on how much you earn. These tax credits are not a preserve of these with children: they are available to everyone.
The amount you get will also be dependent on how old you are and your hours of work per week. For example, if you are 25 years old and above, and work 30 hours a week, you can claim working tax credits. You can also do so with 16 hours a week if you are 16 years old. Those who are more than 50 years old and working 16 hours or more a week also qualify for tax credits, especially if they have just started work after being on benefits for about 6 months.
How Much Working Tax Credit Can You Get?
These tax credits are varied depending on circumstances
Basic WTC is up to £1, 920 a year
Parents (whether couples or single) can get up to £1,950 a year
Those who work up to 30 hours a week can get up to £790 annually
Couples with a child can also claim this credits if they work more than 30 hours a week with one of them working 16 hours or more
Workers with disabilities get up to £2,790 with an extra £1,190 for severe disability
Those who are 50+ years old and working up to 30 hours a week can get up to 1,365 while those working for more than 30 hours a day can get £2,030 annually
Those who spend money on approved or registered childcare can get up to £122 per week for one child and £210 a week for two children or more.
Further Advice on Tax Credits
You can contact your local tax credit office today to get started on your claims. Check out resources on what qualifications are required and be in the know. You can also visit the HMRC website to get more information on tax credits.
It is important to note that tax credits are wholly dependent on your circumstances, socially and financially. Therefore, if your circumstances change, for example your income, it is important to report to the HMRC within one month to avoid the inconveniences that come with reclaiming overpaid tax credits.