The IRS bestows tax breaks in one of two ways – as deductions or credits. Credits are considered better because they come directly off what you owe the IRS, dollar for dollar. Some are even refundable so the IRS will send you a check for whatever’s left over after the credit erases your tax bill.
Then there are tax deductions. They’re good, too, but not quite as good. They subtract from your taxable income. And let’s face it, paying a percentage of $35,000 works out to less than paying a percentage of $38,000, so the value of deductions should not be scoffed at. They can also bring your income down into a lower tax bracket, reducing that percentage on some of your income.
A variety of both credits and deductions are available to help you reduce your tax bill when you have children.
Are There Any Exceptions?
Some qualifying rules for these deductions and credits can prevent certain parents from claiming them. They're listed below with the credit or deduction they apply to.
These are all federal – not state – deductions and credits. Please check with a local tax professional to find out what's available in your state because rules can vary considerably.
How Much Do You Get Back in Taxes for a Child in 2018?
First, keep in mind that you can only literally “get back” money for a child if you’re eligible for one of those refundable tax credits. But you can still spare some of your income from taxation if you have a child…or at least you could in 2017. Things have changed a little in 2018.
The Tax Cuts and Jobs Act came along and eliminated personal exemptions from 2018 through 2025 when the terms of the TCJA will end unless Congress acts to renew it. Congress says these lost exemptions are balanced by the fact that the TCJA also nearly doubles the standard deductions for all filing statuses.
The Child Tax Credit is one of the good credits that are refundable – at least to some extent. It’s $2,000 per child as of 2018, and the IRS will send you the balance up to $1,400 after it erases anything you might owe the IRS. The Additional Child Tax Credit has been eliminated in 2018. The TCJA more or less rolled the 2017 Child Tax Credit and Additional Child Tax Credit into one credit.
Of course, there are rules for qualifying. Your child can’t be any older than age 16 on the last day of the tax year – Dec. 31 – and she must have a valid Social Security number at the time you file your tax return. You must have earned at least $2,500 in income from a job or self-employment for the year, and you have to file Form 1040 to claim the credit. But as a practical matter, you’d have to do that anyway. Forms 1040A and 1040EZ are being consolidated into Form 1040 beginning with the 2019 tax filing season for 2018 returns. They will no longer be available.
Your qualifying child must be related to you but does not necessarily have to be your son or daughter. You can claim a grandchild for purposes of this tax credit as well. She must live in your home for at least half the year, and she cannot provide more than half her own support.
The TCJA ramps up the income limits for this credit considerably to $200,000 and $400,000 respectively for single and married filers. Beyond these incomes, you're disqualified from claiming it.
How Much Did You Get Back in Taxes for a Child in 2017?
It used to be that you were entitled to a $4,050 personal exemption for each of your children if you could claim them as dependents in 2017. The exemption worked like a tax deduction. It came off your taxable income. Then these personal exemptions were “phased out” and eliminated for taxpayers who earned too much, but many families got some significant tax relief from this particular break.
The Child Tax Credit was only $1,000 per child in 2017, and the credit wasn’t refundable then unless you were able to claim the Additional Child Tax Credit as well.
You couldn’t claim this credit in 2017 if you earned more than $75,000 if you were a single taxpayer or $110,000 if you were married and filing a joint return.
What Is the Family Tax Credit?
The TCJA provides for a new Family Tax Credit to cover your children – or other relatives – who are older than age 16. Otherwise, the rules are much the same as those for the Child Tax Credit.
This credit is only $500 compared to the $2,000 per child offered by the child tax credit. Still, that’s better than not being able to claim a credit at all for your older child.
Do I Qualify for the Earned Income Tax Credit?
This is a complicated tax credit. It’s available for certain taxpayers, even those without children, but it gets better if you do have children. It, too, is refundable.
The Earned Income Tax Credit is designed to put cash back into the pockets of lower-income families, so the income limits are pretty strict. They increase, however, with the number of qualifying children you can claim as your dependents. For example, if you’re single or file as head of household in 2018, you can’t earn more than $40,320 and qualify…but this assumes that you have only one child. The limit increases to $49,194 if you have three or more children.
You and your child must have valid Social Security numbers, and your investment income can’t exceed $3,500 as of 2018 if you have any at all. The amount of the credit also depends on the number of children you have. You can receive $6,431 in the 2018 tax year if you have three or more qualifying kids.
The IRS offers a free tax calculator, the “EITC Assistant,” on its website that will tell you if you qualify and, if so, how much of a credit you qualify for. You must file Schedule EIC with your tax return if you’re claiming this credit with a qualifying child.
Do I Qualify for the Child and Dependent Care Tax Credit?
This tax credit compensates you for some of what you pay for child care in order to go to work or look for work. It survived the TCJA so it’s still in effect in 2018.
Again, this credit is subject to multiple rules. First, you have to have earned income, and if you’re married, both you and your spouse must have earned income unless your spouse is disabled or is a full-time student for at least five months during the year. Your child dependent must have lived with you for more than half the year.
The person you pay to provide care can’t be your spouse, the parent of your child or anyone you can also claim as a dependent. This rule doesn’t necessarily rule out your older child, but she can’t be your dependent and she must be at least age 19 by the end of the tax year. The child you’re paying for care for must be under age 13 or disabled to the extent that he cannot care for himself in your absence.
The Child and Dependent Care Tax Credits work out to 20-to-35 percent of $3,000 of your qualified child care costs for one child or $6,000 for two or more children. If your employer pays for or reimburses you for child care, you can’t include these costs in the calculations.
You generally cannot claim this credit if you’re married but file separate returns.
- Consumerism Commentary: 2018 Standard Deductions and Exemptions
- H&R Block: The New Child Tax Credit
- MarketWatch: Your 20-Something Kid Can Qualify for This New Child Tax Credit
- IRS: 2018 EITC Income Limits, Maximum Credit Amounts and Tax Law Updates
- IRS: Qualifying for the Earned Income Tax Credit
- H&R Block: Child and Dependent Care Credit
- CNBC: Tax Bill Provisions May Help Parents Defray This Massive Cost
- IRS: IRS Working on a New Form 1040 for 2019 Tax Season
- 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