Don’t Ignore These 5 Essential Tax Breaks for Parents

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Learn about five tax breaks that can help parents with the high costs of raising a child, such as the Child Tax Credit and Earned Income Tax Credit. [[{“value”:”

The average cost of raising a child is $233,610, according to the Institute for Family Studies — and that doesn’t even include college tuition. While that number may seem mind-boggling, there are a few tax credits that can provide relief for parents.

A tax credit provides a dollar-for-dollar reduction in how much you owe. If the tax credit is refundable, it can help you get money back when you file your return. If you’re a parent, you can’t afford to ignore these five tax credits.

1. Child Tax Credit

The Child Tax Credit is worth up to $2,000 for each child who was younger than 17 at the end of 2023. There’s a refundable portion of the credit called the Additional Child Tax Credit that’s worth up to $1,600.

To qualify for the credit, your income can’t exceed $200,000 if you’re a single filer or $400,000 if you’re a married couple filing jointly. The child also generally needs to live with you for at least half the year and must be your tax dependent.

2. Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is aimed at families who have low to middle incomes and earn money from working, which is known as earned income in IRS speak.

The credit varies based on family size. The maximum credit is $600 if you don’t have any qualifying children, while it can be as high as $7,430 for families with three or more qualifying children in 2023.

The more family members you have, the higher the income limits. If you’re a single filer with no tax dependents, you can only receive the credit if your income was $17,640 or less in 2023. However, a married couple filing jointly with three dependents could earn up to $63,398 and still qualify.

The EITC is a refundable tax credit, which means it can help you score a tax refund. For that reason, it’s often worth filing a tax return even if you’re not required to, as you could get money back.

3. Child and Dependent Care Credit

Child care costs are soaring, but the Child and Dependent Care Credit provides some measure of relief. If you’re the parent of a child and paid for child care so you could earn money or look for work in 2023, you could qualify for the credit.

To qualify, your child must have been 12 or younger when you paid for the care. However, the credit is also available if you paid for the care of an older child or another qualifying dependent, provided that they were unable to care for themselves.

You can claim up to 20% to 35% of your expenses, based on your income. The maximum credit is $3,000 for one qualifying dependent, or $6,000 for two or more qualifying dependents.

4. American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit (AOTC) is an education tax credit that you may be eligible for if you paid for some of your child’s higher education costs in 2023. The maximum credit is $2,500, with a refundable portion that’s worth up to $1,000. You can use the credit to offset undergraduate education costs, like tuition, books, and supplies.

You can only claim the credit four times on your return for any one person. So if you’re the parent of a fifth-year senior and you’ve already claimed the credit on their behalf four times, you’re out of luck on this one. Single filers with income of $90,000 or less, or married couples filing a joint return who earn less than $180,000 can claim the credit.

5. Lifelong Learning Credit (LLC)

The Lifelong Learning Credit is also available to parents who helped pay for their child’s education, but its rules are a bit more lax than the AOTC’s in a few respects. There’s no limit on how many times you can claim the credit on a dependent’s behalf, plus you can use it if you paid for graduate and vocational programs, on top of undergraduate education.

The maximum credit is $2,000, but there’s no refundable portion. The income limits are the same as the AOTC’s limits.

If you’re paying for more than one child’s higher education expenses, you can claim both credits on your return. But you can only claim each credit on behalf of one child per return.

Will you qualify for these credits?

To cope with the enormous costs of raising a child and putting them through college, it’s essential to max out every tax break available if you’re a parent. Fortunately, most tax-filing software makes it pretty easy to figure out what tax credits and deductions you’re eligible for, but consult with a pro if you have questions.

There’s no way even the most generous tax breaks will cover the costs of parenthood, but the tax credits listed above can provide some small but welcome relief.

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