Tax Returns Tax Benefits for Parents: Credits, Exemptions & Deductions

  1. Your child can bring some additional joy to your life during tax season. The federal government recognizes the significant costs involved with raising children. As a result, the Internal Revenue Service (“IRS”) provides special tax benefits for parents. The following list of tax credits, exemptions and deductions may be available to families with dependent children.

    Definition of a Qualifying Child


    Parents can take advantage of the child tax credit and other benefits if they have a qualifying child. Generally, the child must:
    • Be younger than the taxpayer;
    • By the end of the year, be either less than 19 years of age or a student under age 24;
    • Not have provided at least 50% of his or her own support during the tax year;
    • Be claimed as a dependent on the tax return of his or her parent(s);
    • Not have filed a joint tax return;
    • Have been a U.S. citizen, U.S national or resident alien.
    When claiming a tax credit or exemption, you will be required to provide the qualifying child’s social security number or adoption taxpayer identification number to the IRS (usually found on Form 1040 or 1040A of your tax return.) Parents can apply for a social security number on behalf of their newborn child at the Social Security Administration website.

    Dependent Exemption


    The IRS understands that people need to pay the bills and support themselves. It allows for a small exemption of earnings which does not get taxed and amounts to $3,900 in 2013 and $3,950 in 2014. Each person is allowed one exemption and married couples get two exemptions, one for each spouse. The IRS will generally allow a parent to add a “dependent exemption” for each qualifying child, including a newborn child born at any time during the tax year. The amount saved by the dependent exemption is based upon the taxpayer’s tax bracket. Being in the 10% tax bracket will net you about a $390 savings for each qualifying child and more if you are in the 25% bracket.

    Child and Dependent Care Credit


    Parents who pay for child care may be able to claim a credit for the cost if the care was for children under 13 years of age. You may be able to use up to $3,000 of the child care expenses per year and $6,000 if you file jointly with your spouse. The child and dependent care credit can be up to 35% of your qualifying expenses. For more information see IRS Publication 503, Child and Dependent Care Expenses.

    Child Tax Credit


    For each of your children who were less than age 17 by the end of the tax year, you may be able to claim a child tax credit on your return of up to $1,000. Your tax liability is reduced by the entire amount - so a $5,000 liability would become only $4,000 if you receive the full credit. You may be entitled to the child tax credit if your annual income (in 2013) was less than:
    • $110,00 for married couples who file jointly;
    • $75,000 for taxpayers filing as a single head of household;
    • $55,000 for a married spouse filing separately.
    The amount of your Child Tax Credit can be determined using the worksheet available as part of IRS Publication 972, Child Tax Credit. http://www.irs.gov/uac/Publication-972,-Child-Tax-Credit-1 In the event you are not able to obtain the full benefit, you still may be eligible for the Additional Child Tax Credit. See Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.

    Earned Income Tax Credit (EITC)


    People who are employed, self-employed or perform other qualified work and earn less than the amount specified by the IRS during the year ($51,567 in 2013) may qualify for the EITC. Your qualifying child can net you a larger earned income tax credit, which can be calculated using the IRS EITC Assistant.

    Adoption Credit


    Parents who adopt a child may receive a tax credit for expenses incurred that are related to the adoption. See IRS Form 8839, Qualified Adoption Expenses.

    Student Loan Interest Deduction


    Even if you don’t itemize deductions on your tax return, you may be able to deduct interest paid on a qualified student loan for your child. See IRS Publication 970, Tax Benefits for Education.

    Higher Education Credits


    If you incurred costs for your child’s higher education you may qualify for the Lifetime Learning Credit and the American Opportunity Credit. Where the American Opportunity Credit exceeds the tax you owe, you may be eligible to receive a tax refund from the IRS of up to $1,000. See IRS Publication 970, Tax Benefits for Education, which also covers the student loan interest deduction.

    Health Insurance Deduction - Affordable Care Act


    If you're self-employed and paid for your child's health insurance (who are under age 27 by the end of the year), you may be able to deduct the premiums that you paid. You may not even need to list your child as a dependent on your tax return in order to get the benefit of this tax deduction. For more information, see the Affordable Care Act Tax Provisions on the IRS website.

    Michael M. Wechsler

    Michael M. Wechsler
    Michael M. Wechsler is an experienced attorney, founder of TheLaw.com, A. Research Scholar at Columbia Business School and of-counsel to Kaplan, Williams & Graffeo, LLC. He was also an SVP and chief Internet strategist at Zedge.net and legal consultant at Kroll Ontrack, a leading service e-discovery and computer forensics service provider.

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