Raising children can get expensive, especially if you have more than one kid running around the house. Fortunately, parents can benefit from their offspring when tax time rolls around.
There are several tax deductions and credits parents can take advantage of when they file their annual tax returns. Tax deductions help you save money by deducting certain expenses from your income, which may help put you in a lower tax bracket. Tax credits help reduce the amount of taxes you owe for the year. Keep reading for some money-saving tax tips for parents filing their 2022 tax returns.
1. Parents can receive a child tax credit for each child.
If you have children in your home under the age of 19, you may qualify to receive a $2,000 child tax credit for each child. This credit can apply to your biological child, stepchild, or foster child. To be eligible for this tax credit, the child must live with you for more than half of the year and be claimed as a dependent on your tax return.
You may also qualify for this credit if you have a sibling, half-sibling, or any of their descendants that you claim as a dependant. For example, if you are caring for your five-year-old niece who lives with you, you may be able to get the child tax credit.
2. Tax exemptions are offered for dependents.
You may be able to take a tax deduction for any dependent child under the age of 19, or under the age of 24 if they are a full-time student. There aren't any age restrictions on children who are permanently disabled. The exemption you can take for each dependent in 2022 is $4,400. Newborns also qualify for the tax break as long as they were born on any day in 2022. The exemption can lower your taxable income, which may save you money if your income falls into a lower tax bracket.
3. Tax credits for child and dependent care expenses.
Child care may be one of your biggest expenses in raising a child. Thankfully, a tax credit is available to help with how much you spend on child and dependent care. If you enroll a child under age 13 in child care, an after-school program, summer camp, or even pay for a babysitter, you may qualify for up to $2,100 Child and Dependent Care Credit on your tax return.
There are specific income requirements to receive this credit. Parents with an adjusted gross income (AGI) of $125,000 or below qualify for a credit of up to 50 percent of their care-related expenses (up to $2,100). There is a sliding scale on what you may qualify for if you earn over $125,000.
4. Tax credits are available if you adopt a child.
Adopting a child can be costly with all the attorney fees, court costs, and necessary travel expenses you may have to pay. The adoption tax credit can help offset some of these costs. In 2022, the adoption tax credit is up to a maximum value of $14,890. It is a non-refundable tax credit, which can be applied for up to five years after you first claim it. So, if you had $8,000 in adoption expenses and claimed $4,000 in the first year, you can roll over the remaining $4,000 for the next four years.
5. There is a Higher Earned Income Tax Credit for parents.
Having dependent children can help you qualify for a higher Earned Income Tax Credit (EITC). This tax credit is available to taxpayers with low-to-moderate incomes. How many dependent children you have impacts how much credit you are qualified to receive. For example, if you have no children, the maximum EITC you can receive is $560. However, if you have two children, the maximum EITC you can receive is $6,164.
6. Tax credits are available for college-age students.
Parents may qualify for two different tax credit programs if they have children in college — The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Both programs provide tax credits for higher education tuition, fees, books, and supplies. Expenses for housing and transportation aren’t eligible.
The American Opportunity Tax Credit provides a tax credit of up to $2,500 for undergraduate college students. Parents of college students can claim 100 percent of the first $2,000 they spend and 25 percent of the next $2,000. This credit can be claimed for up to four years.
The Lifetime Learning Credit differs from the AOTC in that there isn't a limit on when the tax credit can be claimed, so it can also apply to students enrolled in graduate programs and vocational schools. Parents can claim 20 percent of the first $10,000 paid in school expenses.
7. Parents can deduct student loan interest.
If your child took out a student loan to pay for college, you could deduct up to $2,500 from your taxable income for the interest paid on the student loan. As with most tax deductions, there are income requirements to qualify. Not all student loans are eligible for this tax deduction. The loans must be from a qualified lending institution.
8. There are tax credits for parents caring for disabled children.
Caring for a child with special needs can be a parent’s role well past the age when other children may be ready to break out independently. Therefore, the age requirements on some of the available tax credits and deductions are eliminated or extended for parents of children with disabilities.
For example, the dependent tax exemption typically applies to dependents under 19. However, there isn't an age restriction for dependents that are permanently disabled. There also isn't an age requirement for the child and dependent care tax credit for children with disabilities.