With tax season right around the corner, many people are wondering what family tax credits can reduce what they owe to the IRS. Thankfully, various types of credits are available to those with children. Whether you’re paid for higher education, daycare, or adoption fees, you might be able to claim that back when filing your return.
Understanding the credits and incentives available can help you save money, whether it’s by reducing your liability or increasing your refund. Therefore, you’ll want to keep the following credits in mind when submitting your tax return this year.
Types of Family Tax Credits
Child Tax Credit (CTC)
This credit is available to those with dependent children under the age of 17. Families can claim $3,600 for children under 6 and $3,000 for children 6 to 17.
To be eligible for this credit, families will need to earn less than $400,000 as a couple or $200,000 as a single parent. However, those with higher incomes may be able to claim a partial Child Tax Credit.
Earned Tax Credit (EITC)
The EITC is designed to help families with low- to moderate income reduce their tax liability or increase their refund. You can check if you qualify for this tax credit directly with the IRS on their website.
There isn’t a set credit amount given, as it fluctuates depending on your income, filing status, and number of dependents. But generally, you can receive $3,995 when claiming one dependent and $7,430 when claiming three or more dependents.
Child and Dependent Care Credit
If you have spent money on childcare, then you might be able to claim the Child and Dependent Care Credit. This could be for daycare, after-school programs, or even summer camps. The credit is usually worth 20% to 35% of your expenses, up to $3,000 for one child or $6,000 for two or more children.
Keep in mind that this tax credit is only designed for families where the parents are working or are actively looking for work. On top of that, the qualifying child needs to be under the age of 13 or unable to take care of themselves if you’re not at home.
Education Tax Credits
Higher education can be a major expense for many American families. Thankfully, there are two education tax credits you can claim – the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). If you have spent money on tuition, fees, or coursework supplies, this credit can lower your tax bill by up to $2,500 per student.
Software like Quicken can help you keep track of your education budget as well as other financial spending. It can also help you reach your saving goals to reduce debt and build a financial safety net for your family!
Adoption Tax Credit
Families who have adopted a child can claim the Adoption Tax Credit as one of their family tax credits. This can help offset the costs related to the adoption process, like legal fees or travel expenses. The exact credit depends on various factors, although the maximum amount is $14,440 per eligible child.
For some people, an adoption assistance program may be part of their employee benefit package. If so, check with HR or your company’s payroll platform, such as Paycor.
The best thing about this tax credit is that it applies to adoptions domestically and abroad. You will also need to make sure you’re within the income limit. Those making less than 223,410 can claim full credit, while those earning between $223,410 and $263,410 can claim partial credit.
Understanding options for family tax credits can greatly impact the amount you owe (or get back) from the IRS. There are many online tools, like H&R Block, available, although professional tax accountants can also help you file your taxes. Don’t forget to take note of other credits and incentives. And make sure you know all the tips and tricks of tax season to maximize your return and optimize your financial situation!
