In a NutshellAs a parent, you sacrifice a lot for your kids. But at tax time, you might be able to turn those sacrifices into a higher tax refund with these tax breaks for parents.
This article was fact-checked by our editors and Christina Taylor, MBA, senior manager of tax operations for Credit Karma. It has been updated for the 2019 tax year.
When you’re a parent, you’re entitled to the same tax benefits as everyone else, plus some special tax breaks that could boost your refund.
Being a parent is an expensive affair. On average, parents will spend $233,610 to raise a child born in 2015, according to a 2017 report by the U.S. Department of Agriculture.
The U.S. tax code helps relieve the financial burden a little by offering several tax breaks for parents. We’ve collected some of the best ones in this article to help you potentially save on taxes.
The child tax credit is a partially refundable credit that can directly reduce how much you owe in taxes. Provided you meet income requirements, the maximum credit you can claim is $2,000 per qualifying child.
The tax reform law adopted in December 2017 temporarily increased the child tax credit to $2,000 starting with the 2018 tax year, and makes up to $1,400 per qualifying child refundable. It also adds a $500 nonrefundable credit for qualifying dependents who aren’t children. Plus tax reform increases the phase-out threshold for claiming the credit. Between the 2018 and 2025 tax years, the credit will begin to phase out for taxpayers who are married filing jointly with adjusted gross income of more than $400,000, and $200,000 for everyone else.
If you pay care expenses for a qualifying child or dependent so that you can work, or look for work, you may be able to get a tax credit for up to 35% of the cost. But the amount of expenses you can use in calculating the credit is limited to $3,000 for one qualifying person, or $6,000 for two or more.
You’ll figure the amount of your credit by multiplying your eligible expenses (after applying the earned income and dollar limits) by a percentage between 20% and 35%, depending on your adjusted gross income.
Another tax break for parents in this area is a dependent care flexible spending account. If your employer offers this account, you can contribute to it with pretax dollars to pay for childcare and other dependent care expenses. That means your overall taxable income will be reduced.
If your kids aren’t in college yet, but you want to help them save for their future education, a 529 college savings plan might be a good option to consider. Any money you contribute to a 529 plan generally grows tax-free and isn’t subject to tax if you withdraw it for qualified education expenses of the designated beneficiary.
While you can’t deduct 529 contributions from your federal income taxes, some states offer tax deductions or credits for 529 contributions when you file your state income tax return. Check to see if your state offers these tax breaks for parents.
Additionally, thanks to tax reform, you’re now allowed to withdraw up to $10,000 tax-free per year from your child’s 529 to pay for their tuition and qualifying expenses to attend a public, private or religious elementary or secondary school. The allowance is per child, per year, so if your child has more than one 529 savings account (Good for you!), you can only withdraw a total of $10,000, even if you’re withdrawing from multiple accounts.
Once your kids are in college, you might be eligible for even more tax breaks. Here are just a few.
American opportunity tax credit
This credit is worth up to $2,500 for each eligible student for the first four years of their college education. That’s 100% of the first $2,000 in qualified education expenses and 25% of the next $2,000. If the credit takes your tax liability down to zero, only 40% of the remaining amount is refundable, up to $1,000.
And of course, there are limits and qualifications on who can claim the credit. For example, you can’t claim the AOTC at all if your modified adjusted gross income, or MAGI, exceeds $180,000 if you’re married filing jointly or $80,000 for others. If you’re single, you can receive a reduced credit amount if your MAGI exceeds $80,000 but remains under $90,000, or if you’re married filing jointly your MAGI will need to be between $160,000 and $180,000 to qualify for the reduced amount. Be sure to check out the full requirements before claiming the AOTC.
Lifetime learning credit
An alternative to the American opportunity credit, the lifetime learning credit doesn’t limit how many years you can claim it, unlike the AOTC.
With the LLC, you can get one credit per tax return, rather than per student, provided that any students whose qualified expenses are being claimed are enrolled at a qualifying educational institution. It’s worth up to $2,000, calculated by taking 20% of the first $10,000 of qualified education expenses. The credit is nonrefundable.
As with the AOTC, there are requirements and limitations for claiming the LLC. For example, you can’t claim it at all if your MAGI is $134,000 or more, if you’re married filing jointly, or $67,000 or more for everyone else. Be sure you understand the requirements before you claim the lifetime learning credit.
Student loan interest deduction
If you took out one or more student loans to help your child pay for school, you may be able to deduct up to $2,500 in interest payments you made during the year. Keep in mind that this only works if the loan is in your name; you can’t claim the student loan interest deduction if you’re just helping your child with his or her loans. You also can’t claim this deduction if your filing status is married filing separately or if your spouse can be claimed as a dependent on another tax return.
While the credits and deductions we’ve already listed may offer some big breaks, there are other ways having children can help boost your tax refund.
Medical and dental expenses
For 2019, if you itemize your deductions, you may be able to deduct certain qualified medical and dental expenses for you, your spouse and your dependents, including your children. You can only deduct the amount of qualified expenses that exceeds a set percentage of your adjusted gross income. Tax reform temporarily set that threshold to 7.5% for 2017 and 2018. Unless Congress acts to change the threshold again, it’s set to revert to 10% for 2019. Learn more about deducting medical and dental expenses here.
Earned income tax credit
“It’s easier to qualify for [the earned income tax credit] if the taxpayer has a child,” says Jeremy Allen, a certified public accountant and instructor at TaxCE.com. “If they do not, the taxpayer must meet a number of additional qualifying rules.”
For example, you must …
- Be at least 25 but younger than 65 at the end of the tax year
- Reside in the U.S. for more than half the year
- Not file as married filing separately
- Not be claimed as a dependent or qualifying child on anyone else’s tax return
- Have an adjusted gross income that falls within the limits for the credit
Here’s a table of AGI limits for qualifying for the EITC in 2019.
Qualifying children claimed
Three or more
|Single, head of household or surviving spouse||$15,570||$41,094||$46,703||$50,162|
|Married filing jointly||$21,370||$46,884||$52,493||$55,952|
|Maximum credit amounts||$529||$3,526||$5,828||$6,557|
In addition to these basic rules, some special EITC rules apply to members of the military, ministers, members of the clergy, people receiving disability benefits and taxpayers affected by disasters.
When you started your job, you filled out a W-4 form to determine how much federal income tax your employer should withhold from your paychecks.
If you have kids, you can take more allowances than someone who doesn’t have kids. And typically, the more allowances you claim, the less your employer withholds for federal income tax. So if you or your spouse has had a baby recently, now might be a good time to update your W-4. It’ll put more money back in your paycheck now, and you may not owe a significant amount at tax time.
Plus you can update your W-4 at any time — you don’t have to wait until you start a new job or have a major life event, but those are certainly good reasons to take another look at your W-4 withholdings.
Head of household status
“A taxpayer who is single with a child, or even a qualifying relative, may be able to file as head of household rather than single,” says Allen. “This filing status offers a more favorable tax rate than filing single does.”
With all the tax breaks for parents that the tax code offers, you have plenty of opportunities to improve your chances of getting a tax refund. And you can use these credits and deductions to maximize any refund you’re owed.
There are, of course, caveats to most of these tax benefits. For example, some may limit your tax break based on your income level. In some cases, your child may not count as a qualifying child.
Christina Taylor is senior manager of tax operations for Credit Karma. She has more than a dozen years of experience in tax, accounting and business operations. Christina founded her own accounting consultancy and managed it for more than six years. She co-developed an online DIY tax-preparation product, serving as chief operating officer for seven years. She is the current treasurer of the National Association of Computerized Tax Processors and holds a bachelor’s in business administration/accounting from Baker College and an MBA from Meredith College. You can find her on LinkedIn.