The Internal Revenue Service offers several tax breaks to the caretakers of children aimed at reducing the financial burden income taxes place on families. You can take a tax deduction for a child if the child qualifies. The exact amount you stand to save on taxes for caring for a child depends on your income tax rate and the specific tax breaks that apply to you.
According to the federal guidelines for the Child Tax Credit, individuals who have qualifying dependent children can earn a credit of up to $2,000 per child.
Claiming a Child on Taxes
If you have a qualifying dependent child, you may be entitled to certain credits and deductions on your taxes, including the Child Tax Credit, which is a credit against taxes owed based upon the number of qualifying children you have, as well as your filing status. You may be entitled to credits for expenses incurred in caring for your child while you work. Prior to 2018, you could also reduce your tax by claiming personal exemptions for yourself and your child; however, the Tax Cuts and Jobs Act, which applies to the 2018 tax year onward, eliminated the personal exemption.
2018 Tax Year - Child Credits
The Child Tax Credit was altered for 2018. If your dependent children are qualifying children, you can get a credit of up to $2,000 per child. A qualifying child is a child who is age 16 or younger at the end of the tax year who is either your son, daughter, stepchild, foster child, sibling, stepsibling, or a descendant of one of these. The child also cannot have provided more than half of her own support and must be claimed as a dependent on your tax return. In most cases, the child must have lived with you for more than half of the tax year. If you're single and your child's other parent files separately from you, only one of you can claim that child for the credit.
Because a credit is applied to tax owed, in prior years, it was a nonrefundable credit, which means that if the tax you owe is less than the limit, you don't get the rest of the money back. For example, if you owe $400 in taxes, the credit was worth $400. You did not get to keep the remaining $600. This has changed in 2018 so that a portion of the credit is refundable; the refundable portion is equal to 15 percent of your income reduced by $2,500, up to $1,400. For example, if you made $8,000 in 2018, your refundable portion is 15 percent of $8,000 - $2,500 (which is $5,500), or $825. This means that if you owed $200 in taxes, $200 of the credit would be applied to the bill and $625 would be further applied to give you a refund. The remaining $1,175 is gone.
However, if you make more, your refundable portion is capped at $1,400. So if you make $50,000 in 2018, you would calculate 15 percent of $50,000 - $2,500 (which is $47,500), or $7,125, which exceeds the maximum refundable portion, so your refundable portion would only be $1,400. If you owe $200 in taxes, the credit will be applied to those taxes and you will be refunded $1,200.
Exploring Adoption and Additional Expenses
If you have children you adopted in 2018, you may be entitled to the adoption credit, which is $13,810 for a special needs child, or up to $13,810 for qualified adoption expenses related to all other adoptions. Phaseouts in the amount of the credit begin for taxpayers with modified adjusted gross income over $207,140, with the credit completely phased out for taxpayers making over $247,140
Finally, if you incur child care expenses so you can work or look for work, you may be eligible for the Child and Dependent Care Credit. You can claim the credit if you pay child care expenses for a dependent child age 13 or younger so you can work, or a disabled child of any age. The credit ranges from 20 percent to 35 percent of up to $3,000 of expenses for one child and $6,000 for two children. If you make more than $43,000, the credit saves up to $600 for one child and $1,200 for two or more children. The maximum credit is $1,050 for one child and $2,100 for two or more children.
2017 Tax Year - Child Credits
The Child Tax Credit for 2017 was limited to $1,000 for each qualifying child. To claim the full credit, your annual income for 2017 must be less than $75,000 as an individual filer or $110,000 as a joint filer. Tax credits directly reduce your total income tax bill, so the $1,000 credit saves you $1,000 in taxes for each eligible child, but only to the extent of your actual tax liability.
The adoption credit for 2017 is up to $13,570 for each child.
For 2017, you can claim a tax exemption of $4,050 for yourself, your spouse if filing a joint return and for each dependent you claim. Your child is considered your dependent if he lives with you more than half the year, does not file a joint tax return, is younger than 19 or 24 if a full-time student and does not provide more than half of his own support for the year. An adult child can count as a dependent if you provide more than half of his support for the year and his gross income is less than $4,050. The exemption reduces your taxable income by $4,050, so the tax savings for claiming an exemption depends on your income tax rate. For example, if you are in the 28 percent tax bracket, the exemption saves you 28 percent of $4,050, or $1,134. These exemptions are no longer available for the 2018 tax year forward.
- IRS: Publication 503 (2017), Child and Dependent Care Expenses
- eFile: What Is The Child Tax Credit?
- IRS: Qualifying Child Rules
- Forbes: New: IRS Announces 2018 Tax Rates, Standard Deductions, Exemption Amounts And More
- Forbes: What The Expanded Child Tax Credit Looks Like After Tax Reform
- 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.
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.