Children bring you a collection of tax breaks to help offset their cost. The amount you get back for a child on your taxes depends on how many of these tax benefits you qualify for and the specific rules that apply to each. Almost everyone with a child qualifies for something and gets money back, or at least reduces the amount owed at tax time.
Each child you claim as a dependent gives you an exemption you can deduct from your taxable income. Qualifying children must be under age 19, or under age 24 if a student. The age rule is waived if the child is disabled. A child must reside with you for at least half of the year and not provide more than half of his own support. As of 2012, the amount of the exemption was $3,800. The amount you get back depends on your tax bracket. To figure your savings, multiply the highest tax percentage you pay by the exemption amount. For example, if you are in the 25-percent tax bracket, you’ll get $950 back, or reduce what you owe the Internal Revenue Service by that amount.
Child Tax Credit
The Child Tax Credit is $1,000 per qualifying child. A child must be your dependent and under age 17. The amount of the credit is reduced starting when your adjusted gross income reaches IRS limits. For 2012, the limit for married couples filing jointly was $110,000. If you were married and filed separately, the limit was $55,000. For other filing statuses, phase-out started at $75,000. With tax credits, the amount of the credit is subtracted from your tax liability, so the amount you get back is equal to the amount of the credit. The Child Tax Credit is what the IRS calls "nonrefundable." This means that the credit can’t be more than your tax liability. For example, if your tax liability is $1,500 and you have two children, you get $1,500 instead of $2,000. When this happens, you may claim the refundable Additional Child Tax Credit so you can still collect the nonrefundable portion of the Child Tax Credit.
When you pay for child care so you can work or look for work, you can get a tax credit for up to 35 percent of child care expenses up to $3,000 for one child, or up to $6,000 for two or more children. This means that the credit can be up to $1,050 for one child or $2,100 for more than one child. Children must be your dependents and under age 13. The Child and Dependent Care Credit is nonrefundable, so the amount you receive is the credit amount or your total tax liability, whichever is less.
Earned Income Credit
Although someone who has no children can get up to $475 back with the Earned Income Tax Credit, it primarily benefits people with children. The amount you get back varies widely because it starts small when your adjusted gross income is low, increases to a maximum, and then gradually declines to zero when your adjusted gross income reaches a maximum. The Earned Income Tax Credit is a refundable credit, and may be as much as $3,169 for one child as of 2012, $5,236 for two children, and $5,891 for three or more children. The maximum adjusted gross income as of 2102 for married couples filing jointly was $43,050 with three or more children.
- Internal Revenue Service: In 2012, Many Tax Benefits Increase Due to Inflation
- Internal Revenue Service: A “Qualifying” Child
- Internal Revenue Service: 10 Facts about the Child Tax Credit
- Internal Revenue Service: Publication 503 (2011), Child and Dependent Care Expenses
- Internal Revenue Service: Preview of 2012 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates
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- Tax Benefits of a Custodial Parent
- The Rules for Deducting Childcare Expenses
- Do I File a Tax Return if I Didn't Work but Have a Dependent Child?
- What Can I Deduct if I'm a Dependent?
- Federal Child & Dependent Care Credit Income Limits
- Can a Husband and Wife Both Claim Flexible Dependent Care Benefits?
- How to Claim Child Tax Allowances
- First Time Baby Tax Credit