Tax credits for children make up the single most common way Americans add money to their tax refund. Love'em to death or wish you could hide them in someone else's house, your children are worth money.
The IRS grants five main credits for taxpayers to claim for children who are the taxpayer's dependent. They don't even have to be your own children to get the tax credits.
In order to get any of the tax credits related to children, the child a taxpayer is claiming must be a "qualifying child". A qualifying child is typically defined as a taxpayer's child or stepchild, foster child, sibling or step-sibling, or a descendant of one of these.
Other considerations such as residence, age and support come into play when determining whether you qualify for a credit, and these can vary by which credit you are claiming.
There are five tax credits related to children that you can possibly take:
1. Child Tax Credit - This is the most common tax credit related to children affecting taxpayers earning up to $130,000 a year. This credit also benefits low income families as it is "reversible" as the "additional child tax credit". This means if a taxpayer owes nothing in taxes because of a low income, the taxpayer will still get money back for his family in the form of a reverse credit.
2. Child and Dependent Care Credit - Different from the Child Tax Credit, this credit is only for those who have expenses paying for child care while they work or go to school. It can be taken for up to $3000 in child care expenses.
3. Earned Income Tax Credit - This tax credit is another "reverse tax credit", meaning if you qualify you get money back even if you paid no taxes. It is for low and moderate income families, those earning less than $45,373.00.
It pays on a graduated scale according to your income and how many kids you have (up to 3). For some families the credit is worth almost $5000.00. This tax credit is available only to those with earned income, meaning income from wages, salary, tips and/or self-employment.
4. Adoption Credit - The costs of adopting a child can, for the most part, be taken as a credit on your tax return. You are required to file Form 8839 if you want to take this tax credit.
5. Student Loan Interest - If you are paying for your child's student loan the interest you pay on that loan can be claimed on your taxes. The American Opportunity Tax Credit can be worth as much as $2,500 in tax credits on the first $4,000 of qualifying college expenses.
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