What Tax Breaks Are Available for Parents with Children?

What Tax Breaks Are Available for Parents with Children?
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Last updated: January 2014

The following question was submitted to John Roska, an attorney/writer whose weekly newspaper column, "Q&A: The Law," runs in the St. Louis Post-Dispatch (Illinois Edition) and the Champaign News Gazette.

**Editor's Note: The tax information in this article has changed since its first publication date.The content has been updated to reflect amounts for the 2013 tax year. 

Question

I’m confused about the different tax breaks for parents with kids, and want to be sure I don’t miss any. I have child care expenses so I can work and attend school. What tax deductions or credits can I claim?

Answer

There are four main tax credits that parents with kids can claim: the Child Care Credit, the Child Tax Credit, Higher Education Credits, and the Earned Income Tax Credit. You may be able to claim all four.

The details can get complicated, but here are the basics:

The Child Care Credit is for people with child care expenses in 2013 for a child who was under 13. That credit is a percentage (from 20% to 35%, depending on income) of allowable child care expenses (a maximum of $3,000 for one kid; a maximum $6,000 for multiple kids). That means the biggest Child Care Credit someone could get is $2,100 (35% of $6,000).

The Child Tax Credit of $1,000 per child is for people with children under 17 in 2013. A full credit is available for single and joint filers with incomes of up to $75,000 and $110,000, respectively. As income increases above those amounts, the credit is “phased out.”

There are two kinds of Higher Education Credits, for people who paid their own or their child’s college or vocational school tuition. The American Opportunity credit (a modification of the Hope credit) is for parents paying for dependents who are exemptions attending the first four years of college full time. The Lifetime Learning credit is for anyone paying “post-secondary” tuition for themselves or their dependents. 

You may not qualify for a American Opportunity credit, but your own educational expenses may get you the Lifetime Learning credit.

The maximum American Opportunity credit is $2,500 per student; the maximum Lifetime Learning credit is $2,000, period. Single filers must have an income under $80,000; joint filers must be under $160,000.

Finally, there’s the Earned Income Tax Credit (EITC). The maximum EITC is $6,044, and decreases as income goes up to a top limit of $46,227 ($51,567 if married filing jointly).

Only the EITC is fully “refundable,” meaning that if the EITC exceeds the tax you owe, the IRS pays you the excess. If you have 3 or more kids, part of the Child Tax Credit can be refunded. Forty percent of the American Opportunity credit may be refundable, the rest is not refundable. The other kinds of credits reduce your taxes, but won’t get you a refund if they exceed your tax liability. Click on the title below for more information about the EITC.

These are all credits, which are much better than deductions. Deductions get subtracted from the income that is taxed; credits are subtracted directly from the tax you owe.

For more information from the IRS, go to Tax Information for Parents


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