Common Tax Credits for Parents

August 24, 2022

When your household grows, your household budget will need to grow too! Common tax credits for parents can help alleviate some of the added costs of being a parent.

The IRS has many options for parents in need of some financial help when it comes to their household taxes. There are tax credits, tax deductions, and tax exemptions that you can learn about and consider. Many of these are items you'll worry about when filling out your tax return or when working with your tax preparer during tax season. 

What is a Tax Credit?

Tax credits are a type of tax incentive. They are more straightforward than tax exemptions because they offer a lump sum off of your owed taxes each year. This can often provide higher tax returns to taxpayers that qualify for tax credits. 

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What is a Dependent?

A dependent is a tax term that refers to people in the household who depend or rely on the income of the head of the household. They are members of the household that are financially supported rather than contributing financially. This term often refers to children in a household. 

little boy against an orange background

Dependent Exemption

Before 2018, there was a dependent exemption for households with children that helped reduce that household's tax obligations. This allowed parents to claim a dependent exemption when filing taxes, which would make them owe less in taxes each year. For this exemption children needed to be younger than 19 years old, unless there was a disability involved. 

Child Tax Credit

Since 2018, there is now a dependent credit for children instead. This is also referred to as a child tax credit. So instead of claiming a tax exemption, parents can now claim a tax credit for their children. 

Since 2021, this child tax credit was raised by the American Rescue Plan Act to better help parents with young children get the financial breaks they needed during the COVID-19 pandemic. The maximum child tax credit that parents could claim on their taxes was increased to $3,600. To receive this maximum credit the parents' children needed to be under 6 years old. If their children were between 6 years old and 17 years old, then they could claim a $3,000 child tax credit. 

How to Qualify:

  • Have children that are younger than 17 years old. 

Child and Dependent Care Tax Credit

The Child and Dependent Care Tax Credit is a tax break designed for parents with children or other dependents that have disabilities. This tax credit can also help parents who need to pay for childcare to go to work. 

How to Qualify:

  • Have a child that is younger than 13 years old. 
  • Have childcare expenses for children under 13 years old. 
  • This childcare allowed you to go to work while your child was looked after. 
  • Have dependent care expenses for a dependent in your household that can't take care of themselves.  

Earned Income Tax Credit 

If you are a working parent with a low to moderate income, then this tax credit is for you. This credit was designed to help working parents who make an income within a certain low to moderate range. Whether you qualify for this credit will depend on how much you make, whether you're filing jointly with a spouse, and how many dependents or children you have. For instance, in 2021 a couple filing jointly that makes $57,414 or less and has 3 children can claim a tax credit up to $6,728. 

How to Qualify:

  • Be a working parent.
  • Have low to moderate household income.
Mom holding her baby while working

Education Tax Credit

The education tax credit is also called the American Opportunity Tax Credit. This tax credit helps students, and parents, with the costs of paying for higher education. It reduces the amount of taxes a student paying tuition owes each year and can help increase a student's tax return. Parents can also take advantage of an education tax credit when they have children that are undergraduate students and when they've helped pay for their child's higher education expenses.

How to Qualify:

  • One of your children is an undergraduate student. 
  • Have education expenses you helped pay for that year. 

Adoption Tax Credit

Parents that adopt can take advantage of a special adoption tax credit from the IRS. Adoption can be an expensive process, and when you have qualifying adoption expenses, you can include those on your tax return for a tax credit. This adoption tax credit can reach up to $14,440 per child. 

Adoption with paper people

How to Qualify:

  • Have necessary adoption expenses and fees. 
  • Have expenses from court costs or attorney fees. 
  • Have qualifying travel expenses from the adoption process. 

Tax Break for Buying a House

When you are a homeowner, you can have access to special tax breaks. Many of the tax breaks available to homeowners include deductions for certain aspects of home ownership. Homeowners can use deductions for mortgage interest payments, mortgage points, private mortgage insurance, and more. Homeowners can also find some tax deductions depending on their state. 

How to Qualify:

  • Own a home.
  • Have qualifying home expenses like mortgage interest payments. 

In Conclusion, 

Parents do a lot of work to take care of their children. Don't miss out on tax credits you qualify for as a parent and speak with a tax professional to make sure you're getting all of the tax advantages you deserve.