Being a parent is a rewarding experience, but the IRS wants you to know there are tax benefits as well to being a mom or dad.
IRS Tax Tip 2013-11, posted Wednesday to IRS.gov, lists eight credits and deductions that parents can take advantage of.
For each dependent claimed on your 2012 return, you can deduct $3,800 from your taxable income. Any child born in calendar year 2012 applies.
A dependent does not necessarily have to be your child. According to IRS Publication 501, a dependent is either your qualifying child or qualifying relative. Each must be able to pass a set of rules in order to be legally claimed.
The IRS has an online tool called Who Can I claim as a Dependent? The interactive interview will walk you through the qualifications and advise if an individual can be claimed.
Child Tax Credit
If your child was under the age of 17 as of December 31 of last year, you may be able to claim the Child Tax Credit. Be aware of the age difference – most dependents need to be under the age of 18. The Child Tax Credit requires your dependent to be under the age of 17.
Generally, the credit can reduce your tax by as much as $1,000 for each of your qualifying children. The Additional Child Tax Credit is available as well if you are not able to claim the full amount of the Child Tax Credit.
See the IRS tool Am I eligible for the Child Tax Credit?
Child and Dependent Care Credit
If you use a qualified daycare or child-sitting services, you may be able to take a credit for the expense. The daycare service would need to be for the purpose of one or both parents working or looking for work. Although mandatory school programs do not qualify, most elective pre-school or nursery school programs do.
Earned Income Tax Credit
The Earned Income Credit is available to most households with a dependent, as long as the gross 2012 household income was less than $50,270. With a maximum credit of close to $6,000, the Earned Income Credit is especially attractive to parents.
The Adoption Credit is available to cover certain costs incurred when adopting a child. For details about this credit, see the related IRS article Adoptive Parents: Don’t Delay Your Adoption Credit Refund.
Higher education credits
Higher education costs paid for your immediate family member may qualify for one of the IRS education credits – the American Opportunity Credit or the Lifetime Learning Credit. See IRS Publication 970, Tax Benefits for Education, for more information.
Student loan interest
If you paid interest on your son or daughter’s student loan (or yours), you may be able to deduct this amount. You should receive a 1098-E form in the mail from the lender showing the amounts paid.
Generally, the amount you may deduct is the lesser of $2,500 or the amount of interest you actually paid. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions in order to claim the credit.
Self-employed health insurance deduction
If you are self-employed and pay for family health insurance coverage, the amount of the premium may be deductable. Although dependency exemptions cap out when your child reaches the age of 18 (or 24 for full-time students), the deduction for self-employed health coverage applies until age 27.