Part of having a child is accepting the financial commitment to support them. Think about diapers, childcare, education, and extra-curricular activities, and the costs start to add up quickly. But there are several significant tax breaks for taxpayers with dependents, which can help to offset some of the cost by reducing the amount of tax you owe.
Don’t overlook these important child tax benefits, deductions, and credits:
- Child Tax Credit: For children under the age of 17, you can claim a credit worth $2,000 for each qualifying child. You could also receive $500 for dependents who do not qualify for the Child Tax Credit or are over age 17.
- Child and Dependent Care Credit: If you need to pay for care for a young dependent so that you can work or search for a job, you may be eligible for a tax credit worth up to 35% of qualifying expenses from $3,000 for one child (from $6,000 for two or more children).
- Earned Income Tax Credit: The EITC benefits working people with low- to moderate-income levels. The amount you could get in credit increases when you have children. Parents who worked but earned less than $54,884 and filed married filing jointly may qualify for up to $6,431 in credit. If you were filing as single, head of household, or a surviving spouse, the income threshold is $49,194.
- Adoption Credit: Parents who are trying or have adopted a child within the tax year could be eligible for a non-refundable tax credit worth up to $13,840 per child.
- Education Tax Credits: If you have dependents in college, you may qualify for special tax credits for people enrolled in higher education. The American Opportunity Tax Credit is worth up to $2,500 per year and is refundable up to $1,000 for students who qualify. Those who don’t qualify for the AOC may still be eligible for the Lifetime Learning Credit, worth up to $2,000.
- Student Loan Interest Deduction: If you meet all the requirements, you could claim up to $2,500 for interest paid on student loan debt. Interest on a qualified student loan may be deductible even if you do not itemize deductions. It can also be taken in addition to one of the education credits.
- Self-employed Health Insurance Deduction: If you pay for your own health insurance, you can deduct the cost of premiums paid for you as well as your spouse and your dependents.
*A note about the personal exemption: Due to the Tax Cuts and Jobs Act, the personal exemption is no longer available. It has been replaced by a higher standard deduction and a larger child tax credit.
This post is up to date for tax year 2018 (returns filed in 2019).