Married couples who have kids have quite the advantage when tax time rolls around. The Internal Revenue Service takes the cost to raise a child into consideration when charging taxes on your income. Not only will you receive a deduction for claiming your kids, several doors open to other credits that will reduce or even eliminate your tax debt.
For each person that you claim on your taxes, you can deduct an exemption from your taxable income. As of 2012, the IRS grants $3,800, for you, your spouse and each of your kids. The more people you claim on your taxes, the less income the IRS will tax. If you claim kids, you can't file using Form 1040-EZ, so you'll have to file your taxes using either Form 1040-A or 1040 to claim the exemption for your kids.
Child and Dependent Care Credit
If your kids are under age 13 and you pay for day care so you can work or go to school, the child and dependent care credit might be helpful. The child and dependent care credit reduces the tax you owe and is nonrefundable, which means that if the amount of your credit is more than your tax, you don't get the remaining credit as a refund. The credit you receive is based on a percentage, which is based on your income. Taxpayers who have an adjusted gross income of less than $15,000 receive a credit of 35 percent of their expenses. The credit goes down by 1 percent per thousand dollars of income down to a 20 percent credit. There is no income limit on the child and dependent care credit.
Earned Income Tax Credit
The earned income tax credit is a tax credit for low- to moderate-income taxpayers. The EITC is refundable, which means any remaining credit can result in a refund. Three factors weigh in on the amount you receive as a credit -- your kids, your AGI and your filing status. For couples filing jointly, your AGI must be less than $42,130 if you have one child, $47,162 if you have two children or $50,270 if you have three or more to get the credit. The amount of your credit is based on a sliding scale, which goes up as your AGI rises, plateaus at the middle and goes back down as it reaches the AGI limit.
Child Tax Credit
The child tax credit is a nonrefundable credit that cuts the tax you owe the IRS. For each child under age 17 whom you claim on your taxes, you can receive $1,000 off your tax bill. The amount you'll receive as a credit depends on your income. Couples who have an AGI less than $110,000 can receive the entire credit. Couples who earn more will see a reduction of $50 per thousand over the $110,000 mark. If the child tax credit isn't enough to cover your tax bill, you might qualify for the additional child tax credit. This credit, which is refundable, is typically 15 percent of your earned income over $3,000.
Education Credits and Deductions
Once your kids start college, the education credits become available. The IRS offers two credits -- the American Opportunity credit and the Lifetime Learning credit. The American Opportunity credit grants up to $2,500, but your AGI must be less than $180,000 for married filing jointly. You can claim the American Opportunity credit only four times; your child must be enrolled at least half-time and not have a drug conviction to qualify for the credit. The Lifetime Learning credit grants up to $2,000 for qualified expenses, but your income must be less than $122,000 if you file jointly to qualify. If you do not qualify for either credit, you can take the tuition and fees deduction, which knocks as much as $4,000 off your income, but your AGI must be less than $160,000 for joint filers. If you pay interest on your child's student loans, you can deduct up to $2,500 if your AGI is less than $150,000 and file jointly.
- Forbes: IRS Announces 2013 Tax Rates
- Internal Revenue Service: Child and Dependent Care Credit
- Internal Revenue Service: Earned Income Credit
- Internal Revenue Service: Publication 972 -- Child Tax Credit
- Internal Revenue Service: Five Ways to Offset Education Costs
- Internal Revenue Service: Publication 970 -- Tax Benefits of Education
- Internal Revenue Service. "Publication 972 (2018), Child Tax Credit." Accessed Jan. 21, 2020.
- United States Congress. "An Act To Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018," Page 20. Accessed Jan. 21, 2020.
- Internal Revenue Service. "What's New with the Child Tax Credit after Tax Reform?" Accessed Jan. 9, 2020.
- Internal Revenue Service. "Child Tax Credit and Credit for Other Dependents at a Glance." Accessed Jan. 9, 2020.
- Internal Revenue Service. "The Child Tax Credit Benefits Eligible Parents." Accessed Jan. 9, 2020.
- Internal Revenue Service. "Publication 972: Child Tax Credit (2017)," Page 3. Accessed Jan. 9, 2020.
- Internal Revenue Service. "Publication 972: Child Tax Credit (2017)," Page 4. Accessed Jan. 9, 2020.
- Internal Revenue Service. "Schedule 8812: Child Tax Credit (2017)," Page 1. Accessed Jan. 9, 2020.
- Internal Revenue Service. "Schedule 8812: Child Tax Credit (2017)," Page 2. Accessed Jan. 9, 2020.
Angela M. Wheeland specializes in topics related to taxation, technology, gaming and criminal law. She has contributed to several websites and serves as the lead content editor for a construction-related website. Wheeland holds an Associate of Arts in accounting and criminal justice. She has owned and operated her own income tax-preparation business since 2006.