Raising children is a significant financial responsibility. A very small silver lining in this regard is that parenthood also provides valuable tax benefits that parents can take advantage of when filing their returns. Understanding which deductions, credits, and tax strategies apply to families can help parents minimize their tax liability and maximize their refunds.
Perhaps most obviously, claiming federal and state Child Tax Credit (CTC) opportunities is one of the most significant tax benefits available to parents. For eligible children under the age of 17, parents can claim a credit that directly reduces their tax bill. The credit amount and income thresholds change periodically, so parents should check the latest IRS and state tax updates to determine how much they qualify for.
Less obvious tax “wins” for parents
Parents with low to moderate income may qualify for the Earned Income Tax Credit (EITC), which can provide substantial relief. The credit amount depends on income level and the number of children claimed as dependents. Since the EITC is refundable, it can increase a family’s tax refund, helping parents cover essential expenses.
For parents who pay for child care so they can work, look for a job, care for other loved ones, etc. the Child and Dependent Care Credit can offer significant tax savings. This credit covers a percentage of qualified child care expenses for children under the age of 13. Expenses for daycare, babysitters and certain summer camps may qualify, but parents should maintain receipts and documentation to support their ability to claim this benefit.
When it comes to educational expenses, parents should consider 529 plans, which allow tax-free growth on contributions when used for qualified education expenses. Additionally, parents who pay college tuition or related expenses may qualify for the American Opportunity Tax Credit (AOTC) or the Lifetime Learning Credit (LLC), both of which can reduce the cost of higher education.
Finally, single parents may benefit from filing as Head of Household, which provides a larger standard deduction and potentially lower tax rates compared to filing as Single. To qualify, the parent must have a dependent and cover more than half of the household expenses.
To better ensure that they claim all eligible deductions and credits, parents should keep organized records of expenses, tax forms and any correspondence related to their children’s upbringing. Should questions arise, seeking personalized legal guidance is always an option.