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3 Tax Breaks for Families with Children

tax breaksParents can save a significant amount in taxes by using tax breaks geared towards families. The Child Tax Credit, Earned Income Tax Credit, Adoption Credit, Child and Dependent Care Credit, and Education Tax Credits are all essential tax credits worth exploring. Parents may claim their children as dependents on their tax return to earn the deduction of $4,000 for each dependent claimed. The Motley Fool discusses the three top tax breaks available to families:

“Earned Income Tax Credit

“The Earned Income Tax Credit is a large tax break for low- and middle-income taxpayers. It originally covered only families with children, and even though it now has provisions for single filers and couples without kids, the maximum credits are much larger for those with children.

Earned Income Tax Credit

“In order to qualify, you have to earn income from a job or business. The credit amount rises along with income up to a certain threshold, at which point it hits a maximum point. Once your income gets high enough, the credit starts to phase out until it disappears entirely at the maximum income levels shown above.

“The nicest thing about the Earned Income Tax Credit is that in many cases, you can claim it even if you don’t have any tax liability. That’s because the tax break is what’s known as a refundable credit. Even if you wouldn’t otherwise have to file a return, however, you must file in order to receive the credit.

“Child Tax Credit

“One criticism of the Earned Income Tax Credit is that it can be complicated to calculate. By contrast, the Child Tax Credit couldn’t be easier. It pays $1,000 for every eligible child who is 16 or younger at the end of the tax year.

“In order to qualify, the child must be your dependent for tax purposes and must be related to you. You have to live with the child for more than half the year to claim the credit on the child’s behalf, and you have to provide at least half of the financial support for the child during the year.

“The Child Tax Credit is designed to be available to more families than the Earned Income Tax Credit. There are income limits above which the credit starts to phase out, but those limits are much higher than the corresponding Earned Income Tax Credit amounts.

Filing Status Child Tax Credit Phaseout Begins at This Income Level
Single, Head of Household, or Qualifying Widow(er) $75,000
Married Filing Jointly $110,000
Married Filing Separately $55,000
“In addition, although the regular Child Tax Credit isn’t refundable, a related provision called the Additional Child Tax Credit can be. There are some extra requirements for the refundable portion of the credit, but unlocking both parts of the Child Tax Credit can produce four-figure savings.

“Child and Dependent Care Credit

“Those with children often need to pay someone to help take care of them. Those costs can be expensive, but the IRS has come through with a credit to offset a portion of those expenses.

“The Child and Dependent Care Credit provides a tax break for up to $3,000 in child care expenses for families with one child or $6,000 for two or more children. To claim the credit, the child must be 12 or younger. If married, the parents must file a joint return and both must have earned income from a job or business.”

The amount of credit varies by income level. It can reach a maximum of approximately $2,100. For more information, review Publication 503, Child and Dependent Care Expenses or consult your tax professional.