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Raising children can be expensive. Fortunately, there are a number of tax benefits that can help. We've found eight tax benefits that every parent and guardian should know.

Children can bring tremendous happiness to a parent’s life. However, raising and educating those little bundles of joy can burn a noticeable hole in your wallet. Fortunately, parents can take advantage of a number of tax deductions and credits designed to reduce the costs of parenting. Here are 8 tax breaks for parents you need to know.

Related: How to Build a Financial Safety Net as a New Parent

8 Tax Benefits You May Qualify For

The IRS has established eight notable tax benefits that you may qualify for as a parent. Take a look at the tax benefits mentioned below and the stipulations for each. They might put quite a bit of money back in your pocket each year.

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1. Is your child a dependent?

Listing your child(ren) as a dependent on your tax return can save a lot of money. In order for a child to qualify as a dependent for tax purposes, he or she must meet four specific criteria:

  1. He or she must be your child, stepchild, adopted child, foster child, brother or sister, or a descendant of one of these (a niece or grandchild, for instance).
  2. The child must live with you for more than half the year.
  3. The child must be under 19 years of age at the end of the year. If the child is a full-time student, he or she can be up to 24 years of age. If your dependent is totally and permanently disabled, there are no age restrictions. *The IRS also notes that the child must be younger than you, or your spouse if you’re filing jointly.
  4. The child cannot provide more than half of his or her own financial support.

Find more savings: What Is The Cheapest Tax Software?

2. Are you a low- to moderate-income earner?

The Earned Income Tax Credit (EITC) can provide a substantial tax credit on your earned income. It’s also available to people who aren’t parents, but the credit is greater for eligible low-wage taxpayers with children.

The maximum EITC that can be claimed for tax year 2019 is $6,557, and the maximum income limit is $55,952. *If you are looking ahead to your 2020 taxes (which you’ll file in early 2021), the maximum EITC that can be claimed will be $6,660 with a maximum income of $56,844.

Be sure to check the EITC law updates to ensure that you meet the specific guidelines and income limits for your unique tax situation.

3. Did you pay health insurance premiums for your child while self-employed?

Even if your child is not a “dependent,” you may be able to deduct any premiums you paid for health care coverage throughout the year if you had self-employment income. This includes the entire cost of any medical, dental, and long-term care insurance premiums for you, your spouse, and your dependents. In order to qualify, your child has to be under age 27 at the end of the tax year for which you’re filing.

There is a catch, though. In order to deduct these premiums, neither you nor your spouse could have been eligible to participate in an employer’s existing, subsidized health care group plan. This is an important thing to remember if your self-employment income is a side hustle. It’s also important if your spouse is/becomes employed and is newly eligible to join a group plan.

However, if the former happens and your spouse’s new job takes away this eligibility from you, you may still deduct the months of premiums paid before they took that new job.

4. Was your child under 17 years of age?

You may be able to get a $2,000 Child Tax Credit on your tax return if your child is still under 17 at the end of the year. This credit is available for each qualifying child, too, which is especially helpful if you have multiple eligible children.

Remember that a tax credit is different from a tax deduction. The Child Tax Credit is a dollar-for-dollar reduction in your total bill, which could mean substantial savings if you qualify.

This credit is limited to taxpayers who fall within a certain modified adjusted gross income. The credit begins to phase out if your income exceeds $400,000 when married filing jointly or $200,000 for all other filing statuses.

Also, to qualify for this credit, your child has to have lived with you for more than half of the tax year, be a U.S. citizen, and not have provided for more than half of their own living expenses. They also need to be listed as a dependent on your tax return and, as mentioned, cannot have turned 17 years of age or older by the last day of the year.

If the amount of your Child Tax Credit exceeds the amount of tax you owe, you won’t get the difference back in the form of your tax refund. However, you may be able to get an additional refund through filing the Additional Child Tax Credit.

5. Did you pay someone to care for your child?

If your child is younger than 13 years old, you may be able to claim a tax credit for expenses related to their childcare throughout the year. The care, however, must have been provided in order for you to work or look for work (date night babysitters do not count, unfortunately, unless the night out is work-related).

The amount of the credit depends on factors like your income, but it can equate to as much 35% of your qualifying expenses.

6. Is your child a student at a college or university?

The American Opportunity Credit is a tax credit for undergraduate college education expenses. It provides up to $2,500 in credits on money spent on tuition, fees, and related expenses. If you owe less in taxes than the credit for which you qualify (bringing your taxes owed to zero), you can have a portion (40%) of the remaining credit refunded to you, up to $1,000.

Likewise, the Lifetime Learning Credit allows you to earn a credit of up to $2,000 for higher education expenses. This credit is calculated as 20% of the first $10,000 of (qualified) education expenses, up to the $2,000 maximum.

The value of the credit changes depending on your income, but there is no limit to the number of years you can receive the Lifetime Learning Credit.

Unlike the AOC mentioned above, the LLC is not refundable. This means that if the credit earned reduces your tax owed to zero, you won’t be able to receive any of the credit back in the form of a tax refund.

7. Did you adopt your child?

You may be able to receive a credit of up to $14,080 (for tax year 2019) per child for adoption-related expenses, as long as they occurred during the year in which the adoption was finalized.

If this credit reduces your tax liability to zero, the excess credit can be carried forward for up to five years. That way the money is not simply lost, nor is it refunded in the form of a tax return.

This credit includes the adoption of a child under the age of 18 or one who is unable to care for him or herself in a physical or mental capacity. It does not include expenses incurred in order to adopt the child of your spouse.

The amount of the credit is phased out according to your MAGI. This phase-out begins with a MAGI of $211,160 (for 2019) and ends at $251,160. Also, in order to claim the Adoption Credit, you must file a paper tax return because you have to include adoption-related documentation.

8. Do you pay interest on a student loan?

You may be able to claim up to $2,500 as a tax deduction for the interest paid on student loans this year. In order for your loan to apply, it must have been taken out solely to pay for qualifying educational expenses and the loan can’t be from a related person or under an employer plan. Also, the student must be enrolled at least half-time in an eligible educational program and working toward a degree, certificate, or other recognized credential.

In order to take this deduction or some part of it, your modified adjusted gross income must be less than $85,000 for a single taxpayer or $170,000 for a joint filer. Starting at $70,000 (single) and $140,000 (joint), however, the credit amount begins to phase out.

Phase-out beginsPhase-out ends
Single, Head of Household, or Qualifying Widow(er)$70,000$85,000
Married Filing Jointly$140,000$170,000

You may have noticed that there is no option listed for those who opt to file under Married Filing Separately. That’s because the student loan interest deduction is not available to this tax filing category.

Does Your Child Need to File Taxes?

If you have a small child at home and are like most Americans, you probably haven’t given thought to whether your child needs to file their own tax return. However, depending on their financial situation, it may be in order.

Did your child earn income this year?

If your child has more than $12,000 in earned income ($13,600 if they are blind), he or she likely has to file a tax return. This is true even if he or she is listed as a dependent on your own return.

This “earned income” only applies to wages and salaries that your child has received throughout the year as payment for providing services to an employer. This is true even if the income is for a part-time job.

Did your child make investment income this year?

If your child earned income from investments, interest, and dividends totaling more than $1,050 ($2,650 if blind) this year, he or she will need to file a return for their unearned income.

There is the option to elect to report a child’s unearned income on the parent’s return. This is allowed if the child is under 19, or under 24 if they are a full-time student. If the parent does this, the child will not have to file their own return. However, note that the reported interest and dividend income may be taxed at the parent’s tax rate in this situation, rather than the child’s.

Related: How To Get Your Teens To Start Investing

The Reason for Dependent Tax Incentives

Some of you may wonder why the government provides tax benefits for having children. Well, the argument goes that we all have a vested interest in the outcome of the country’s children.

God-willing, you will one day grow old. When that day comes, today’s children will care for you and pay taxes that fund your benefits. Since raising a child can be tremendously expensive, tax policy can incentivize people to have children and raise them responsibly.

Presumably, this will lead to a population of well-educated, responsible, tax-paying citizens. And those citizens will keep our country running (and funded) for years to come.

As always, consult with a tax professional before making any decisions. If you do your taxes on your own, our list of the best tax software programs can handle these deductions.

The Best Free Tax Software

SoftwareFederal eFile CostBest For
TurboTax$0 to $150Those who want extra guidance and advice while filing, along with an easy-to-use interface.
H&R Block$0 to $139.99Those at a higher risk of being audited, since they offer free in-person audit support.
TaxAct$0 to $74.95Those who want to save money but still need some guidance on taxes.
TaxSlayer$0 to $47Those who are confident in filing their taxes and want to save as much as possible.
FreeTaxUSA$0 to $6.99Those who want to save money when filing taxes more than anything else.
eSmart Tax$44.95 - $89.95Those who want to save but also have the security and backing of a trusted company.
e-File$0 to $34.95Those who have more complex tax situations but still want to save money.

Author Bio

Total Articles: 100
Stephanie Colestock is a respected financial writer based in Washington, DC. Her work can be found on sites such as Investopedia, Credit Karma, Quicken, The Balance, Motley Fool, and more, covering a range of topics such as family finances, planning for the future, optimizing credit, and getting out of debt. She is currently working toward her CFP certification. Her full portfolio can be found at stephaniecolestock.com.

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