All parents are familiar with the high cost of raising children. But did you know that your children may help you to qualify for some income-tax benefits? Here are some benefits the IRS wants parents to know about.
Child Tax Credit. You may be able to take this credit on your tax return for each of your children under age 17. Each credit is worth $2,000 per child. Married couples filing jointly must have income below $400,000 to receive all or part of this credit.
Child and Dependent Care Credit. You may be able to claim the credit if you pay someone to care for your child under 13 so that you can work or look for work. The credit is up to $3,000 of eligible expenses to care for one child under the age of 13, or up to $6,000 for two or more kids.
Earned Income Tax Credit. The EITC is a benefit for certain people who work and have earned income from wages or self-employment. EITC reduces the amount of tax you owe and may also give you a refund. Married couples filing jointly, with three or more qualifying children and income below $56,844, may receive up to $6,660 for the Federal earned-income credit.
Adoption Credit. You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. Taxpayers claiming the adoption credit must file a paper return because adoption-related documentation must be included. For 2020, the maximum adoption credit is $14,300 per child. Taxpayers with modified adjusted gross income below $214,500 will be entitled to all of this credit.
Child with Earned Income. If your child has earned income from working, he may be required to file a tax return. If a child's earned income is less than $12,400, no Federal tax-filing is necessary, unless Federal income tax was withheld.
Children with Investment Income. Children pay their own low tax rate on investment income below $2,200. When a child's investment income exceeds $2,200, it will be taxed at the parent's higher rate.
Higher Education Credits. Education tax credits can help parents to offset the costs of college. The American Opportunity Tax Credit and the Lifetime Learning Credit are education credits that reduce your Federal income tax dollar-for-dollar, unlike a deduction, which reduces taxable income. You may eligible for a credit up to $2,500.
Student-loan interest. You may be able to deduct interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income, so you do not need to itemize your deductions. The maximum deduction is $2,500 for student-loan interest.
Self-employed health-insurance deduction. If you were self-employed and paid for health insurance, you may be able to deduct any premiums you paid for coverage for any child under 27 at the end of 2020.
After paying expenses for your child all year, be sure to claim all the tax deductions and credits to which you are entitled.
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or email@example.com.
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