7 Ways Claiming a Dependent Can Lower Your Taxes

children reduce taxes owed

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. 

1. Child Tax Credit

If you have a child or children under the age of 17, you may be able to claim the Child Tax Credit (CTC). The CTC can reduce your tax bill by $2,000 per qualifying dependent. There is no limit to the number of children you can claim, but they do have to meet the IRS requirements. This credit is also partially refundable up to $1,400. This means you could receive some of it back in your refund if your tax liability is $0.

If your dependents are over age 17 or they don’t qualify for the CTC for other reasons, you may still be able to claim a tax credit worth $500 per dependent. This credit is not refundable, but it can reduce your tax bill if you have one.

2. 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).  

3. 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.  

4. 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 $14,080 per child. 

5. 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 AOTC may still be eligible for the Lifetime Learning Credit, worth up to $2,000.  

6. 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.  

7. 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.

This post is up to date for tax year 2019 (returns filed in 2020).

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