Whether your child is a newborn or a teenager almost ready to head off to college, children have an impact on your taxes. In honor of National Children’s Day, celebrated this year on June 11, here are some things you should know!
Get That Number
You probably were given a form to request a social security number for your newborn before you left the hospital. Having a newborn can be a busy, overwhelming time, but don’t let that stop you from applying for a social security number. You’ll need your child’s social security number to claim him or her on your tax return.
Child Tax Credit
If you can claim your child as a dependent you can claim the Child Tax Credit and other tax benefits as well. The Child Tax Credit will reduce the taxes you owe by $2,000 for each dependent child you claim who is under the age of 17 at the end of the year—the credit phases out if your income is over $200,000 ($400,000 if married filing jointly.
Earned Income Tax Credit
This is a huge credit for parents with dependent kids, which can be a credit up to $6,935 in 2022 ($7,430 in 2023) if you have three or more kids. Generally speaking, to qualify for the EITC you must meet these basic rules and some income limits:
- You have earned income from employment. (Unemployment income doesn’t count.)
- You are a U.S. citizen or resident alien all year
- Have a valid Social Security number (SSN) by the due date of the tax return
There are certain rules if you are separated from your spouse and not filing a joint tax return.
While you can have interest, dividends, and other investment earnings, you cannot have more than $10,300 in 2022 ($11,000 in 2023). Most importantly, you have to file your federal taxes in order to claim this valuable credit.
Child and Dependent Care Credit
Not to be confused with the Child Tax Credit, the Child and Dependent Care Credit helps people who pay for child care to allow them to work. The credit you receive will range up to $1,050 if your childcare is for one child under 13 (no age limit if incapacitated), and double that if caring for two or more children under 13. The credit depends on your income and the cost of your child care, up to 35% of $3,000 in expenses for one child and up to 35% of $6,000 in expenses for two or more children.
Dependent Care FSAs
If your employer offers a dependent care FSA, you can contribute up to $5,000 per household before tax directly from your paycheck to the account. The money going into your account is not taxed, so that’s like getting a tax deduction for the cost of childcare.
If you adopted your baby, a special adoption credit of up to $14,890 in 2022 ($15,950 in 2023) will be a big benefit in offsetting the costs of the adoption.
The benefits of 529 plans was expanded beyond just college education. Parents can also use 529 plans to pay for their children’s education at private elementary and high schools.
If you save for your children’s education through tax-advantaged 529 plans, your contributions won’t be tax deductible, but you’ll never pay tax on the earnings if the funds are used for education. So don’t delay, the earlier you start contributing, the longer the funds will have to grow tax-free. Additionally, low to middle-income parents can contribute up to $2000 per beneficiary each year into a Coverdell Education Savings Account and reap tax-free earnings, similar to 529 plans.
Don’t worry about knowing these tax rules. Meet with a TurboTax Full Service Expert who can prepare, sign and file your taxes, so you can be 100% confident your taxes are done right. Start TurboTax Live Full Service today, in English or Spanish, and get your taxes done and off your mind.
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