3 Tax Breaks You Should Know As A Parent

According to the USDA’s most recent figures, raising a child costs nearly a quarter-million dollars over the first 18 years. Fortunately, the IRS offers some tax breaks to assist families in dealing with these enormous costs.

In the IRS and Tax Foundation data, families qualified for an average tax credit of up to $4,879 in 2019 for the earned income tax credit and child tax credit alone. The importance of tax credits have been more pronounced post-pandemic, as parents settle into the changes in their workplaces. A tax credit not only reduces the amount of money you owe in taxes, but can result in a tax refund. Here are some tax breaks you should check out.

Child Tax Credit

Parents are able to claim a credit of up to $3,000 for each child under the age of 18, and $3,600 for any child under the age of six. The credit amount is notably higher than previous years ($2,000 per child in 2020), but qualifying families will also receive half of the credit amount in advance payments. For example, if you have two children and receive a credit of $6,000, half of that amount will be paid to you between July and December 2021, amounting to $500 per payment.

The American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit (AOTC) is a tax credit available to parents who paid qualified education expenses for their child’s first four years of college. Tuition, fees, and course materials can all be claimed as expenses and parents can get up to $2,500 payment for each child. The AOTC is partially refundable up to $1,000, which means that if you do not owe taxes, you may be eligible for a refund of up to this amount.

Child and Dependent Care Tax Credit

You may be able to claim the child and dependent care tax credit on your tax return if you pay for child care while working or looking for work. This credit provides a tax break for qualified expenses such as summer camp or, before or after school care. To get this credit, your child must be under the age of 13 (unless they are physically or mentally incapable of taking care of themselves).

There are no income restrictions on who can claim the credit but you cannot claim more than $3,000 per child ($6,000 if you have two or more children).

The best thing about tax credits is that they are a dollar-for-dollar reduction. Although they are frequently mixed up with deductions, Credits and deductions are not the same thing. Deductions are dollar amounts deducted from your taxable income (deductions reduce the amount of income that is taxed), whereas credits reduce the amount of tax actually paid. With proper research, you can reduce the financial burdens you face as a parent.