Whether your child is a newborn or a teenager almost ready for college, children have an impact on your taxes. In honor of National Children’s Day, which falls on June 11 this year, here are some things to know!
get that number
You were probably given a form to apply for a social security number for your newborn before you left the hospital. Having a newborn can be a busy and overwhelming time, but don’t let that stop you from applying for a social security number. You will need your child’s social security number to claim it on your tax return.
Child Tax Credit
If you can claim your child as a dependent, you can also claim the Child Tax Credit and other tax benefits. The Child Tax Credit will reduce the tax you owe by $2,000 for each dependent child you claim who is under the age of 17 at the end of the year; the credit is phased out if her income is over $200,000 ($400,000 if married filing jointly).
Earned Income Tax Credit
This is a great credit for parents with dependent children, which can be a credit of up to $6,935 in 2022 ($7,430 in 2023) if you have three or more children. Generally speaking, to qualify for the EITC You must meet these basic rules and some income limits:
- You have earned income from your job. (Unemployment income does not count.)
- Are a U.S. citizen or year-round resident alien
- Have a valid Social Security number (SSN) before the tax return due date
There are certain rules if you are separated from your spouse and do not file a joint tax return.
While you can have interest, dividends, and other investment earnings, you can’t have more than $10,300 in 2022 ($11,000 in 2023). Most importantly, you must file your federal taxes to claim this valuable credit.
Child and Dependent Care Credit
Not to be confused with the Child Tax Credit, the Child and Dependent Care Credit helps people who pay for child care so they can work. The credit you receive will be up to $1,050 if your child care is for one child under age 13 (no age limit if disabled), and double that if you care for two or more children under age 13. The credit depends on your income and the cost of your child care, up to 35% of $3,000 in expenses for one child and up to 35% of $6,000 in expenses for two or more children.
Dependent Care FSA
If your employer offers a dependent care FSA, you can contribute up to $5,000 per household before taxes directly from your paycheck to the account. The money that goes into your account isn’t taxed, so it’s like taking a tax deduction for the cost of child care.
If you adopted your baby, a special adoption credit of up to $14,890 in 2022 ($15,950 in 2023) will go a long way toward offsetting adoption costs.
benefits of education
The benefits of 529 plans have expanded beyond a college education. Parents can also use 529 plans to pay for their children’s education at private elementary and secondary schools.
If you save for your children’s education through tax-advantaged 529 plans, your contributions won’t be tax-deductible, but you’ll never pay taxes on the earnings if the funds are used for education. So don’t delay, the sooner you start contributing, the more time the funds will have to grow tax-free. In addition, low- to moderate-income parents can contribute up to $2,000 per beneficiary each year to a Coverdell Education Savings Account and earn tax-free earnings, similar to 529 plans.
Don’t worry about knowing these tax rules. Meet with a full-service TurboTax expert who can prepare, sign, and file your taxes, so you can be 100% sure your taxes are done correctly. Begin Full Service TurboTax Live today, in English or Spanish, and finish your taxes and forget about it.
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