You’ve got your hands full with your job, keeping up a home, and one or more children. Sometimes it may feel like you just want a break, and when it comes to your taxes, you may actually be eligible for a variety of tax breaks for parents. That means more money for you to keep everything running smoothly.
What is a tax credit? Unlike a deduction which reduces your adjusted gross income, a tax credit reduces the actual amount of taxes you owe.
Child Tax Credit
You can get up to $2,000 per qualifying child as long as your modified adjusted gross income is under $200,000 for single/head of household/married filing separately filers and $400,000 for married filing jointly filers. Above these thresholds, you can still get some money, but it does gradually phase out.
A qualifying child must be under the age of 17 and claimed on your tax return as your dependent. They must also live with you for more than half the year, must not provide more than half of their own financial support, and not file a joint return. They can be a son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them.
Child and Dependent Care Credit
If you paid someone else to help you take care of your child under the age of 13 or another dependent who was unable to take care of themselves, you could receive an additional credit for those expenses. As the taxpayer, you must have earned income or be looking for work.
This credit can be up to 35% of up to $3,000 of expenses for one qualifying dependent or up to $6,000 of expenses for two or more qualifying dependents. If you received any dependent care benefits from your employer, your credit will be reduced by that amount.
Adoption Credit
If you adopted a child, you could get a credit of up to $15,950 for expenses paid to adopt that child. Qualifying expenses include adoption fees, attorney fees, court costs, travel expenses, and re-adoption expenses. If you received benefits from your employer for the adoption of a child, you could instead get an income exclusion up to $15,950.
Earned Income Tax Credit
The Earned Income Tax Credit is for low-income earners, and those with children may get an even higher credit. This credit can be anywhere from $600 for those with no children or up to $7,430 for those with three or more children. A qualifying child must be either under the age of 19 or a full-time student under the age of 24 at the end of the calendar year. They must also live with you for more than half the year and can be a son, daughter, stepchild, foster child, brother, sister, half-brother, half-sister, stepbrother, stepsister, or a descendant of any of them.
Education Credits
The American Opportunity Credit and Lifetime Learning Credit are both for students pursuing a higher education. If the student is your dependent and is not claiming the credits on their own tax return, you could claim one of these credits.
- American Opportunity Credit: Up to $2,500 based on $4,000 of qualified expenses. Your modified adjusted gross income must be under $90,000 for single filers and $180,000 for married filing jointly.
- Lifetime Learning Credit: Up to 20% of qualified tuition expenses based on the first $10,000 of expenses with a maximum of $2,000 for the credit.
**You cannot claim both credits in the same year, and these credits cannot be claimed by a dependent on a separate return.
California Tax Credits for Families
Yes, there are additional tax credits that can be claimed on your California state return, including California’s version of the Earned Income Tax Credit and a Young Child Tax Credit that have their own eligibility requirements.
Tax credits can be confusing but can save you money. Contact us today to find out more.
**Please keep in mind: Tax laws and eligibility requirements change often, and these lists are not exhaustive. Always contact a tax preparer for the most up-to-date information.