Child-related tax credits
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Table of contents
- Chapter 1: Withholding
- Filling out your W-4
- Chapter 2: Forms and filing
- Filing your return
- Chapter 3: Deductions
- Deductions: cutting your tax bill
- Chapter 4: Credits
- Tax credits: Cut your tax bill
- Chapter 5: Life events and taxes
- Your changing tax life
- Chapter 6: Closing details
- Taking care of tax details
- See all stories »
While children are a bundle of joy, they also cost a bundle of money. But Uncle Sam offers several ways your youngsters can save you tax cash.
The child tax credit and its companion additional-child tax credit could cut your tax bill substantially for each young dependent you claim. For the child tax credit, there are no records to keep or extra forms to file to get this savings. However, if you claim tax relief for more than one child, then you do have to fill out Form 8812. And for both credits, there are certain tests to meet and worksheets to complete before the Internal Revenue Service will let you take the credit.
Tax law changes also make this credit partially refundable for lower-income filers with just one or two children, meaning a portion of it can be claimed even if they owe no taxes.
More than two kids
Taxpayers with larger families will want to claim the additional-child tax credit. This is separate from the child credit, primarily because it can be taken even if you owe no taxes. That means your kids could help you get a refund check from Uncle Sam. In addition to having its own line on your individual tax return, the additional-child tax credit requires a bit more paperwork. Form 8812 must be filled out and filed with your return.
Help with care costs
You also might be able to get some tax help if you pay someone to look after Junior while you and your spouse are working or looking for work. In this case, claim the child- and dependent-care tax credit.
This credit covers a percentage of the costs a taxpayer pays to have someone care for young children. (It’s also available for any dependent, not just a child, or an adult who is unable to care for himself or herself.) There is a dollar limit on the expenses toward which you can apply the credit and the credit is larger for people who make less money.
The dependent-care tax credit won’t cover your entire child (or other dependent) care costs, but it can help defray some of your expenses.
- About 75 percent of caregivers are women.
- Two-thirds of caregivers in the United States have jobs in addition to caring for another person.
- Most caregivers are middle-aged: 35-64 years old.
And be aware that you might have some other tax duties if you pay someone to look after your child, other dependent or spouse in your home. In this case, the IRS might consider you a household employer, meaning you are responsible for withholding and paying Social Security and Medicare taxes, as well as paying federal unemployment tax — collectively referred to as the nanny tax.
Adoptions get tax help, too
Adoptive parents may be able to claim a tax credit on their federal income tax return for qualified expenses incurred to enlarge their families. This credit can be claimed even if the adoption hasn’t been finalized.
The adoption tax credit can help parents pay for some of the costs they incurred to welcome a child into their families. There no longer are separate credit limits for an adopted child with special needs as long as the youngster is a U.S. citizen or resident. However, the timing of the eligible expenses affects the credit amount in international adoptions.
The tax credit limit is for expenses associated with each adopted child, rather than an annual limit, and the credit can be spread over several years. However, the credit is progressively phased out for higher-income families.
According to IRS Publication 968, qualified adoption expenses include:
- Reasonable and necessary adoption fees
- Attorney fees
- Some travel costs, including necessary transportation, meals, and lodging.
Expenses related to surrogate parents or adopting a spouse’s child do not qualify for the credit. The credit also does not apply to expenses reimbursed by the government or private programs or for which an income tax deduction or credit already is allowed.