9 Tax Breaks for Parents: How Kids Could Save You $1,000s in Taxes
Does the thought of doing your taxes on top of caring for your kids make your head spin?
Take a deep breath: We found nine tax breaks for parents.
Whether your children are swaddled newborns or seeking college degrees; whether you’re single, married with kids or adopted this year, you’re eligible to get some money back on tax day.
9 Tax Credits and Tax Breaks for Kids
Here are the top tax credits and deductions for parents to keep in mind.
1. Out-of-Pocket Medical Expenses
If you had a baby last year, paid out of pocket for medical expenses during your pregnancy and were never reimbursed, you’ll be able to itemize those amounts as deductions.
This tax code requires the expenses to be at least 10% of your adjusted gross income. That might seem unreachable, but since you’ll be billed item by item for prenatal care and childbirth, it can start to add up.
These women paid up to $6,285 by the time their last bill hit their mailbox, so make sure you keep your receipts!
2. Child Tax Credit
As soon as your child is born, you’re eligible for the Child Tax Credit, which provides up to $1,000 for every child under the age of 17, depending on your income.
This might seem obvious, but it’s important to note: Even if your child is born on Dec. 31, you can still claim them for that year.
Remember to claim this credit for each of your children -- if you have more than one, they each qualify for it up until they turn 17 years old.
3. Adoption Tax Credit
The adoption process is notorious for being not only lengthy, but expensive.
The Adoption Tax Credit is worth up to $13,000 to help you alleviate that financial strain. This credit covers travel expenses, court costs and attorney fees, and even home-study costs.
It’s important to keep all receipts throughout the process and file for the year you adopted your child.
4. Earned Income Tax Credit
If you earned income last year but didn't exceed certain thresholds, you may qualify for the Earned Income Tax Credit, which can significantly reduce your tax bill.
The income limits depend on your filing status and how many children you have. For example, if you're filing as single or head of household and have one qualifying child, you must have earned less than $39,131. If you're filing jointly with your spouse and have three qualifying children, you must have earned less than $53,267.
The maximum amounts of credit for the 2015 tax year are:
- $6,242 for three or more qualifying children
- $5,548 with two qualifying children
- $3,359 with one qualifying child
Note: You can also qualify for the Earned Income Tax Credit without having a child.
5. Child Care Tax Credit
Child care costs the average family $18,000 per year, according to a survey from Care.com, but you may be able to get a chunk of that back on your taxes.
If your child is 12 or younger and you pay for child care while you’re either working or looking for work, you qualify for the Child Care Tax Credit. This credit can cover up to 35% of those expenses or $3,000, whichever comes first.
Each child’s costs qualify, so if you have several children under 12, make sure to claim them all!
6. Head-of-Household Status
If you’re single and have a child, don’t overlook this crucial item: your status.
If you file as a head of household, you’re automatically eligible for a lower tax rate than if you file as single.
To be considered the head of household, you must:
- Be unmarried on the last day of the tax year--December 31st.
- Contribute more than 50% of the financial support of the household
- Have a child who lives with you for more than six months of the year
If your child is in college and still a dependent on your taxes, you can claim their college expenses. There are three different types of post-secondary school credits, but you can only use one at a time.
7. American Opportunity Tax Credit
During the first four years of your child’s degree, you can claim up to $2,500 for tuition and related expenses under the American Opportunity Tax Credit.
Your child must attend college at least part time. The income threshold for individual parents is $80,000; married couples must earn no more than $160,000.
Take advantage of this credit while you can -- it’s only available through 2017.
8. Lifetime Learning Credit
Unlike the American Opportunity Tax Credit, there is no limit to the number of times you can claim the Lifetime Learning Credit to lower your overall tax bill.
Worth up to $2,000, the LLC covers tuition, fees, supplies and equipment.
Your modified adjusted gross income must be $65,000 or greater (or $130,000 or greater if you’re filing jointly with your spouse).
9. State Credits for Children in Elementary or High School
Some states offer benefits pay for certain items or activities during the school year.
In Arizona, for example, if your kids attend public school, you’re eligible for a tax credit if you paid any fees related to extracurricular activities, such as buying sports equipment or uniforms. You can even qualify for the credit if you spent money on their SAT/ACT tests or prep classes.
While it won’t affect your federal return, keep these credits in mind when filing your state taxes.
Other Parent-Child Tax Items to Consider
Ask yourself two more questions before filing your return, putting up your feet and enjoying a well-deserved break.
Which Parent Should Claim the Child?
A tricky part of being separated or divorced is figuring out who is supposed to claim the child on their tax return.
To make the call, the IRS typically looks at where the child sleeps for more than half the year, but there are some special exemptions as to who can claim the child and when.
It gets a bit tricky, but this IRS chart answers a variety of questions you might have.
Does My Child Work?
If your child has a job, make sure they file their own tax return.
Teens who work while in school usually don’t make enough money to have a liability. So, even though their employers have likely withheld taxes throughout the year, they’ll get them back in a refund check -- which is a nice incentive.
Plus, it’s a great way to continue teaching them about money.
Your Turn: Will you take advantage of these tax credits and deductions?
Kelly Smith is a junior writer and engagement specialist at The Penny Hoarder. She’s a senior at The University of Tampa and pinches pennies so she can travel the world.