Kids and Taxes: 6 Tax Credits for Parents

Raising children is expensive, but at least when it comes to taxes, kids can help reduce the amount you owe Uncle Sam.

Here are some of the child-related tax credits parents may be able to take advantage of when filing their 2021 taxes:

Child tax credit.

— Child and dependent care credit.

— Earned income tax credit.

— Adoption tax credit.

— The American opportunity tax credit.

— The lifetime learning tax credit.

[Read: What Tax Credits Do I Qualify For?]

Child Tax Credit

Tax credits are different than tax deductions, which lower your taxes by reducing the amount of income that is taxable.

“If you’re able to claim your child as a dependent, you may be eligible for a tax credit, which is actually even better than a tax deduction because it reduces your taxes dollar-for-dollar,” says Lisa Greene-Lewis, a certified public accountant and spokesperson for TurboTax.

Some tax credits, including the child tax credit, are refundable, which means taxpayers can receive a refund even if the amount of tax they owe is zero. Other credits are nonrefundable, so they can reduce or wipe out a tax bill but will not provide a refund.

Previously the child tax credit was $2,000, but in March 2021 the American Rescue Plan increased it to $3,000 per child under age 17, or $3,600 for children under age 6.

Many families already received half of the tax credit in the form of advanced payments from July to December. These families can claim the other half of the tax credit when filing their 2021 tax return.

But not every household will receive the child tax credit. Families are eligible for the credit if their modified adjusted gross income is:

— under $75,000 for single filers.

— under $112,500 for those filing as head of household.

— under $150,000 for those who are married and filing jointly.

If families earn more than that, they’ll receive some of the credit but it will begin to phase out.

A few other things to keep in mind: You’ll need to have provided at least half of your child’s financial support in 2021 to get the tax credit, and in most cases, your child needs to have lived with you for at least half of the year. If your child was born in 2021, even if it was Dec. 31, you’ll receive the full tax credit.

For tax year 2022, the child tax credit will return to its previous level of $2,000 for children under 17 who live with a taxpayer more than half the year.

[Read: Who Can I Claim as a Dependent on My Taxes?]

Child and Dependent Care Credit

The child tax credit is a big help for parents, but they’ll get even more assistance if they spend a lot on professional caregivers.

“Not to be confused with the child tax credit, the child and dependent care credit can assist you if you pay for child care,” Greene-Lewis says.

The child and dependent care credit is more generous in 2021 than in years past because of the passage of the American Rescue Plan Act of 2021. Taxpayers will receive up to $4,000 for one qualifying dependent and $8,000 for two or more qualifying dependents. The credit is fully refundable, which is another change; in years past, it was nonrefundable. But now, if taxpayers don’t owe any taxes and claim the credit, they’ll get that amount of money refunded.

One thing to be aware of: If your adjusted gross income is over $438,000, you won’t be eligible for this credit, even if you were able to get it in previous years.

The credit, Greene-Lewis says, helps to offset child care expenses “for things like nursery school, private kindergarten, after-school programs and day care.”

Earned Income Tax Credit

If you have low to moderate income — for instance, $42,158 a year or less for a single parent with one child — you may qualify for the earned income tax credit.

“If you’re a parent, this huge credit can be worth up to $6,728 on your 2021 taxes if you have three or more kids,” Greene-Lewis says. “It’s worth noting that the earned income tax credit is also unlike other tax credits in that it is refundable, so you can still receive the difference as a tax refund if the credit is greater than the tax you owe.”

Bottom line: The less you make, the more you’ll receive of the earned income tax credit, which is sometimes referred to as the EITC or EIC. The credit ranges from $1,502 to $6,728, depending on factors including number of kids, your earnings and your filing status.

Adoption Tax Credit

For adoptions filed in 2021, families can claim a federal adoption tax credit of up to $14,440 per child.

This can help offset the expenses of adopting a child, other than a stepchild, says Christina Taylor, head of product operations at Cash App Taxes, formerly known as Credit Karma Tax.

“The adoption credit covers legal fees and any travel or meal fees you have as a result of the adoption process,” Taylor says. “If you’re adopting a special needs child, you can claim the entire adoption credit even if it exceeds your expenses. Keep in mind that this credit is limited to your tax liability.”

[Read: How to Get the Biggest Tax Refund This Year.]

The American Opportunity Tax Credit

Parents of college-aged kids generally don’t get to claim the child tax credit, since the financial break ends after age 17. But for older children, there are still some tax breaks.

“If your child is in college, there are two credits you could potentially claim,” Taylor says. The first she suggests parents look at is the American opportunity tax credit.

“The AOTC can be taken for four years,” Taylor says.

The American opportunity tax credit covers 100% of eligible tuition and required fees up to $2,000 as well as 25% of the next $2,000, translating into a total maximum credit of $2,500 per year.

To claim the full credit, your modified adjusted gross income must be $80,000 or less (or $160,000 or less for those married filing jointly).

The Lifetime Learning Tax Credit

The second tax credit that parents of college-aged students should look at is the lifetime learning tax credit, Taylor says.

The lifetime learning tax credit offers a 20% credit on up to $10,000 in eligible expenses. You have to earn less than $59,000 as a single filer or less than $118,000 if you’re filing jointly, although there are reduced credits available up to $69,000 in income for singles and $138,000 for joint filers.

“The LLC has no time limit as long as your child is enrolled in qualifying higher education courses,” Taylor says.

Of course, as the tax credit suggests, the lifetime learning tax credit is for anyone taking higher education courses during their lifetime. So if you or your spouse are taking college courses, you may be able to get a tax credit.

But as you pile on the tax credits, you may want to bring in a tax professional or buy tax software. Things can get tricky. For instance, while you could benefit from the lifetime learning tax credit, and you could claim the ATOC for your college-aged student, a student cannot claim both the LLC and ATOC at the same time in the same tax year.

More from U.S. News

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Kids and Taxes: 6 Tax Credits for Parents originally appeared on usnews.com

Update 01/19/22: This story was previously published at an earlier date and has been updated with new information.

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