So I am currently in the process of starting my family and began researching the tax implications of kids. They help a lot! In fact, I can envision a household with a six-figure income paying no income tax, and I wanted to bounce this off the community here to see if I'm thinking straight.
Situation: Married household, three kids. A single earner has a good job with a $90,000 salary, $5,000 401k match, and accrues $5,000 in the company retirement plan / pension. Total pay - $100,000. Here's how the taxes work out:
$90,000 in potentially taxable income
-$17,000 into 401k
-$10,000 into IRAs (one for worker, one for spouse)
-$5,000 into HSA / FSA (tax-deductible health account)
-$11,900 standard deduction
-$18,200 for five personal exemptions
I figure the taxes on this income to be just over $3,000. Fortunately, the child tax credit for three children is about $3,000, so this lucky guy has no income tax liability at all! (The IRS -->
He still paid FICA, of course, but I was amazed at how much of an impact kids can have on taxes. After all the tax-sheltering, this family still has $63k to live on, which seems like plenty. Future taxes loom over the 401k value and the company pension, but if retirement income is relatively low there will not be much taxing going on then, either.
Does anybody have experience with this?