Tax Credits for Families
Aside from being a source of joy and support, your family can also save you money on your taxes. The IRS offers several tax credit options to families with children. Taxpayers who qualify for these credits can save money because of expenses accrued from child care or education, as well as just for working. Whether you prepare your taxes yourself or hire an accountant, be sure to remember these sources of savings.
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Child Tax Credit
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As a taxpayer with children, you can claim a child tax credit of up to $1,000 per child. The child must be under the age of 17 to be eligible. If a married couple filing jointly earns an adjusted gross income of more than $110,000, the credit becomes reduced by 5 percent. Single parents earning an adjusted gross income of more than $75,000 will see the same reduction in the credit. If the credit exceeds the amount of taxes owed, taxpayers receive some or all of the balance as a refund. The IRS calls this refund the "additional child tax credit."
Child and Dependent Care Credit
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For families with children, adult dependents or an incapacitated spouse, the Child and Dependent Care tax credit saves money on expenses associated with looking after these individuals. Taxpayers can claim up to $3,000 per year for one child or dependent or up to $6,000 for two children or dependents. Depending on the family's income, the credit will be worth 20 percent to 35 percent of these expenses. The more the family earns, the lower percentage it can claim. Families with an adjusted gross income of $15,000 or less may be eligible to claim 35 percent of those costs. A family with an adjusted gross income of more than $43,000 can only take a credit of 20 percent.
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Earned Income Credit
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The Earned Income Credit allows hardworking families with low incomes to keep more of their money and spend less on taxes. Salaries, wages, tips, self-employment net earnings, union strike pay, long-term disability benefits accrued before minimum retirement age and nontaxable combat pay all qualify as earned income. To be eligible for this credit, taxpayers and their children must have valid Social Security numbers. A married couple who wishes to use this credit cannot file separately. In addition, taxpayers lose their eligibility for this credit if they file a return with foreign earned income. Investment income cannot exceed $3,100.
Lifetime Learning Credit
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The Lifetime Learning tax credit makes knowledge easier to obtain by reducing taxes and making it easier for families to pay for college and graduate school. Parents can claim the credit if they pay for more than half of their child's expenses during the tax year and the child is under 19 or a full-time student over 24. This credit has certain limitations: The IRS does not calculate it on a per-student basis, but rather on a per-family basis. That means that the family's credit will be the same whether one member or two members attended college during the tax year.
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