The year our daughter Jane was born, my husband and I almost forgot to claim her on our taxes. She was a newborn, our accountant hadn’t seen me pregnant and the topic never came up during our conversations. Luckily, we remembered, and Jane had a Social Security number, so we were able to claim the Child Tax Credit and get the tax breaks reserved for families with children.
Ours is not an isolated situation — of parents either forgetting or not knowing how to take advantage of tax credits for children. “Parents have a general understanding that tax benefits exist for their situation,” says Mark Steber, Chief Tax Officer at Jackson Hewitt Tax Service, “but because they don’t know what they are or which ones they qualify for, far too many go unclaimed.”
Steber says that parents are often so overwhelmed with the tax credit options that they choose not to claim any at all. That’s thousands of dollars you could be missing out on each year.
Here are 8 tax credits for parents with dependent children you should not forget to claim on your tax returns. (Note: Always do your research or discuss your tax options with a professional. These are just suggestions to keep in mind.)
1. Child Tax Credit
Once you have a baby — adopted children qualify — you can claim up to $2,000 per child on your tax return. How does the Child Tax Credit work? As long as your kid has a Social Security number and is under age 17 — and meets the IRS criteria (including the child’s relationship to you and his/her residence) — the tax credit is yours to claim on your tax return. Note that at certain income levels, the credit is reduced.
If you have dependents who don’t qualify, such as older teens living at home or grandchildren you care for, you can claim a $500 per child credit instead.
2. Child and Dependent Care Tax Credit
While this sounds similar to the Child Tax Credit, it’s not. A family might be able to claim both. The Child and Dependent Care tax credit allows working parents who rely on some kind of child care to deduct a portion of those expenses on their taxes.
But get this: The IRS defines childcare not just as daycare but nearly any entity that has a tax ID number that you send your child (under age 13) to while you are working. When my daughters were younger and attended camps, we always made sure we chose camps with tax ID numbers so we could include those expenses as part of the Child and Dependent Care Tax Credit. This credit could be worth up to $3,000 for one qualifying child and $6,000 for more than one. Many parents I’ve spoken to have no idea that summer camps qualify.
3. Adoption Credit
Did you adopt a child last year? If so, you may be eligible to claim an Adoption Credit and some expenses related to that adoption on your tax return. The maximum credit is $14,300 per child.
Keep in mind that like so many of these tax credits, there are income limits that could affect your eligibility. However, with the Adoption Credit, that “limit” is pretty generous — those earning below $214,520 will get the full credit and those earning up to $254,520 may still qualify for partial credit.
4. The American Opportunity Credit
You can claim the American Opportunity tax credit for up to $2,500 for college-related expenses for your child. You’ll get the full credit if your modified adjusted gross income (MAGI) is $80,000 or less ($160,000 or less for married filing jointly). You can receive a reduced credit if your MAGI is less than $90,000 ($180,000 for those filing jointly).
5. Lifetime Learning Credit
If your dependent child is not eligible for the American Opportunity Credit, but is enrolled in post-secondary education, whether that be grad school, vocational training or classes that aren’t part of a degree program, you might be able to claim the Lifetime Learning Credit. (Note that you cannot claim both that credit and the American Opportunity Credit.)
The Lifetime Learning Credit offers up to $2,000 per tax return (20 percent of the first $10,000 of qualifying educational expenses). You will get the full amount if your MAGI is $59,000 or below ($118,000 if filing jointly), and a reduced credit if your MAGI is between $59,000 and $69,000 ($118,000 and $138,000 filing jointly).
6. Earned Income Tax Credit
Families who earned less than a certain amount each year qualify for the Earned Income Tax Credit. Earned income and adjusted gross income (AGI) must each be less than:
- $50,594 ($56,844 married filing jointly) with three or more qualifying children
- $47,440 ($53,330 married filing jointly) with two qualifying children
- $41,756 ($47,646 married filing jointly) with one qualifying child
Tax year 2020 maximum credit:
- $6,660 with three or more qualifying children
- $5,920 with two qualifying children
- $3,584 with one qualifying child
7. Volunteer work deduction
While the IRS does not have a formal name for this deduction, it’s good to know about if you volunteer your time as a Girl Scout leader or a PTA member at your child’s school — and itemize your tax deductions. That is, you can list on your itemized tax return mileage and any documented expenses for which you were not reimbursed related to this volunteer work. To qualify, you must be volunteering for what the IRS calls a “qualified organization,” and that includes many nonprofit educational organizations.
8. Charitable contributions
If you decide to clean out your child’s closet of toys, games and clothing, and then donate them to a “qualified organization” — and get a receipt — you can deduct that on your itemized taxes, up to a certain amount. Who knew your kids’ clutter could help put more cash in your pocket via a tax deduction? Again, you must submit an itemized tax return to qualify for this deduction.
Last year, our daughter Jane turned 17. That means that when filing our tax return, we can’t apply for the Child Tax Credit for her because she is too old. However, we still have a few more years for her to be our dependent in the eyes of the IRS and allow us to “claim” her as an exemption on our taxes.
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