What Parents Should Know About Kids and Taxes

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 2022 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.

[How to Adjust Your Tax Withholding]

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 or partially refundable, which means taxpayers can receive a refund even if the amount of tax they owe is zero. (The child tax credit is partially refundable; you can receive up to $1,600 in 2023 as a refund, up from $1,500 in 2022.) Other credits are nonrefundable, so they can reduce or wipe out a tax bill but will not provide a refund.

From 2018 until 2020, the child tax credit was $2,000, but if you’re a parent who pays taxes, you may recall that 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. In 2021, parents received some of that money throughout the year, in monthly payments.

But not so in 2022. The child tax credit is back to $2,000 per qualifying child, and no monthly payments were doled out in 2022.

Something else to remember, says Beth Logan, an enrolled agent and the owner of Kozlog Tax Advisors in Chelmsford, Massachusetts: “When a child turns 17, the child tax credit changes to the dependent tax credit, which is only $500. Crazy, I know. It’s like Congress thinks that 17-year-olds are cheaper than 16-year-olds.”

Logan adds, “The parents don’t think to change their W-4 and then their tax withholdings are off by $1,500 and they may owe taxes that year. Then the child finishes school and starts working and the child is still reflected on the W-4. That is another $500 misalignment.”

Logan says taxpayers should review their W-4 annually, “especially in any year when a child turns 17 and any year when a child finishes school.”

It’s also important to know that not every child will receive a child tax credit. Families are eligible for the credit if their modified adjusted gross income is $200,000 or less for single filers, those filing as head of household or those who are married but filing separately. If you’re married and filing jointly, you’re eligible if your modified adjusted gross income is $400,000 or less. If you make more than that, the credit is reduced by $50 for each $1,000 of additional income that you have above the $200,000 or $400,000 threshold until the credit eventually reaches zero.

A few other things to keep in mind: You’ll need to have provided at least half of your child’s financial support in 2022 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 2022, even if it was Dec. 31, you’ll receive the full tax credit.

And for those wondering, “How many kids can you claim on taxes?,” the answer is as many as you have. When it comes to claiming dependents on taxes, whether children or adults, there is no maximum number you can reach.

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.

Similar to the child tax credit, the child and dependent care credit was more generous when you filed your taxes last year, due to the pandemic and the passage of the American Rescue Plan Act of 2021. If in 2022, you paid for services like a babysitter to watch over a qualifying child under age 13 or a disabled dependent of any age, you may be able to receive a tax credit of up to 35% of qualifying expenses of $3,000 (the math works out to $1,050) for one child or dependent. If you have two or more children or dependents, you may be able to get up to $6,000 (35% of that is $2,100). The credit is nonrefundable, and so once your tax bill hits zero, you won’t get any of the money from the credit.

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

[New Income Tax Brackets for 2023 May Save You Money]

Earned Income Tax Credit

If you have low to moderate income — for instance, $43,492 a year or less in adjusted gross income for a single parent with one child — you may qualify for the earned income tax credit, sometimes referred to as EITC or EIC.

“If you’re a parent, this huge credit can be worth up to $6,935 on your 2022 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. The credit ranges from $3,733 to $6,935, depending on factors including number of kids, your earnings and your filing status. (If you have no qualifying kids, the credit is $560.)

Adoption Tax Credit

For adoptions filed in 2022, families can claim a federal adoption tax credit of up to $14,890 per child. You’ll get that full amount if you modified adjusted gross income is below $223,410. If your income ranges between $223,410 to $263,410, you can receive partial credit, and if you have an income above $263,410, you won’t receive the credit.

For those wondering about adoptions filed in 2023, families can claim a federal adoption tax credit of up to $15,950 per child. That’s assuming you have modified adjusted gross income that’s equal to or less than $239,230. If your modified adjusted gross income is more than that but less than $279,230, you will receive a reduced tax credit. If your modified adjusted gross income is more than $279,230, you lose your eligibility for the tax credit.

This adoption tax credit can help offset the expenses of adopting a child, other than a stepchild. The adoption credit covers numerous fees — such as legal or agency fees — as well as travel costs you may have as a result of the adoption process. If you’re adopting a special needs child, you can claim the entire adoption credit even if it exceeds your expenses.

If somehow the adoption was not successful and fell through, and the adoption was domestic (as in, not done internationally), you are still eligible for the adoption tax credit.

[READ: The Benefits of Filing Taxes Early.]

The American Opportunity Tax Credit

As noted, 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, you may want to take a look at the American Opportunity Tax Credit, which 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 between $80,000 and $90,000 (or between $160,000 and $180,000 for those married filing jointly). Forty percent of the tax credit, or $1,000, is refundable.

The Lifetime Learning Tax Credit

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

The lifetime learning tax credit offers a 20% credit on up to $10,000 in eligible expenses. To qualify, you’ll need a modified adjusted gross income between $80,000 and $90,000 (and between $160,000 and $180,000 for joint filers).

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 because filing 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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What Parents Should Know About Kids and Taxes originally appeared on usnews.com

Update 01/18/23: This story was published at an earlier date and has been updated with new information.

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