Parents: Make Sure You Are Taking Advantage of These Four Tax Credits
As parents, one of our frequent mantras we may say to our kids is, "You'll understand when you grow up."
Even if we don't vocalize this, for many of us, when our kids finally grow up and are in a position where they now have their own bills, their own income, and a measure of responsibility, we can finally get on a little common ground with them when we discuss how much things cost.
Until then, terms like budget, coupons, saving and household finances are as foreign to them as what their pecking on their I-phones is to us.
Here's another big grown up word: Taxes.
OK parents, so until our young have flown the coop, what tax breaks can we take advantage of?
The IRS gets a little money back into our pocketbook with these four credits, specific to having and raising kids.
The Earned Income Tax Credit
The IRS Earned Income Tax Credit (EITC) is available to certain lower income working individuals and families. The amount available for EITC increases with the size of your family. For 2010 tax returns, families could claim a maximum of $ 5,666 with three or more qualifying children.
EITC is a refundable credit, meaning that not only does is reduce your tax liability down to zero, but any overage will be paid to you in way of a refund.
In order to qualify for EITC, you must have earned income from employment, self-employment or another source. Public assistance and programs that provide income through the Social Security Administration do not qualify as earned income. In addition, you must either meet the additional rules for workers without a qualifying child or have a child that meets all the qualifying child rules.
To find out if you are eligible for the Earned Income Tax Credit, use the IRS online and interactive tool, EITC Assistant.
Child Tax Credit
Another credit that can put an extra thousand dollars in our pocket per child is the Child Tax Credit. The Child Tax Credit is not refundable, as EITC is. In most cases, the Child Credit can reduce your tax only, not generate a refund.
Eligibility rules for this credit are fairly simple, since the rules for claiming the credit are similar to those to claim a dependent, but they are not identical. You may have a dependent who does not qualify for the Child Tax Credit, but all qualifying children for the Child Tax Credit must also be your dependents.
So if you have a dependent, you likely can claim the Child Tax Credit. One important difference has to do with the child's age. The child must be under age 17 on December 31 of the tax year in order to take the credit.
For more information, see IRS Publication 972.
Child and Dependent Care Credit
According to the IRS, If you pay someone to care for a child or a dependent so you can work, you may be able to reduce your federal income tax by claiming the Credit for Child and Dependent Care expenses on your tax return.
This credit is available to people who, in order to work or to look for work, have to pay for child care services for dependents under age 13. The credit is also available if you paid for the care of a spouse or a dependent of any age who is physically or mentally incapable of self-care.
Child and dependent care expenses are claimed on Form 2441. For more information, see IRS Publication 503.
Education Credits
Various credits are available to both students and families of students who are paying for post high school academia.
These credits can help offset the costs of education. The American Opportunity Credit (Hope Credit) and the Lifetime Learning Credit are examples of education credits you can subtract in full from your federal income tax, not just deduct from your taxable income.
Publication 970, Tax Benefits for Education, will assist you with scholarships, fellowships and grant reductions, the American Opportunity Credit, the Lifetime Learning Credit, student loan interest deductions, assistance for repayment of student loan cancellations, tuition and fee deductions, and how to establish a non-taxable Coverdell Education Savings Account.
Even if we don't vocalize this, for many of us, when our kids finally grow up and are in a position where they now have their own bills, their own income, and a measure of responsibility, we can finally get on a little common ground with them when we discuss how much things cost.
Until then, terms like budget, coupons, saving and household finances are as foreign to them as what their pecking on their I-phones is to us.
Here's another big grown up word: Taxes.
OK parents, so until our young have flown the coop, what tax breaks can we take advantage of?
The IRS gets a little money back into our pocketbook with these four credits, specific to having and raising kids.
The Earned Income Tax Credit
The IRS Earned Income Tax Credit (EITC) is available to certain lower income working individuals and families. The amount available for EITC increases with the size of your family. For 2010 tax returns, families could claim a maximum of $ 5,666 with three or more qualifying children.
EITC is a refundable credit, meaning that not only does is reduce your tax liability down to zero, but any overage will be paid to you in way of a refund.
In order to qualify for EITC, you must have earned income from employment, self-employment or another source. Public assistance and programs that provide income through the Social Security Administration do not qualify as earned income. In addition, you must either meet the additional rules for workers without a qualifying child or have a child that meets all the qualifying child rules.
To find out if you are eligible for the Earned Income Tax Credit, use the IRS online and interactive tool, EITC Assistant.
Child Tax Credit
Another credit that can put an extra thousand dollars in our pocket per child is the Child Tax Credit. The Child Tax Credit is not refundable, as EITC is. In most cases, the Child Credit can reduce your tax only, not generate a refund.
Eligibility rules for this credit are fairly simple, since the rules for claiming the credit are similar to those to claim a dependent, but they are not identical. You may have a dependent who does not qualify for the Child Tax Credit, but all qualifying children for the Child Tax Credit must also be your dependents.
So if you have a dependent, you likely can claim the Child Tax Credit. One important difference has to do with the child's age. The child must be under age 17 on December 31 of the tax year in order to take the credit.
For more information, see IRS Publication 972.
Child and Dependent Care Credit
According to the IRS, If you pay someone to care for a child or a dependent so you can work, you may be able to reduce your federal income tax by claiming the Credit for Child and Dependent Care expenses on your tax return.
This credit is available to people who, in order to work or to look for work, have to pay for child care services for dependents under age 13. The credit is also available if you paid for the care of a spouse or a dependent of any age who is physically or mentally incapable of self-care.
Child and dependent care expenses are claimed on Form 2441. For more information, see IRS Publication 503.
Education Credits
Various credits are available to both students and families of students who are paying for post high school academia.
These credits can help offset the costs of education. The American Opportunity Credit (Hope Credit) and the Lifetime Learning Credit are examples of education credits you can subtract in full from your federal income tax, not just deduct from your taxable income.
Publication 970, Tax Benefits for Education, will assist you with scholarships, fellowships and grant reductions, the American Opportunity Credit, the Lifetime Learning Credit, student loan interest deductions, assistance for repayment of student loan cancellations, tuition and fee deductions, and how to establish a non-taxable Coverdell Education Savings Account.
More from this Contributor:
Are you eligible for the Child Tax Credit?
5 most frequently asked questions about claiming a dependent
Do I qualify for the IRS Earned Income Tax Credit?
Published by James Skye - Featured Contributor in Business & Finance
As a 15-year IRS employee with a strong freelance background, my education and experience affords me the opportunity to contribute articles relating to personal finances and taxes. I also enjoy writing relig... View profile
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