We are in the midst of tax season once again, and as usual, the rules and laws have changed, leaving many to wonder how much tax they will end up paying or how big a refund they will receive. Thanks to the tax-filing companies that lobby our government to keep taxes complicated, the problem will only get worse. It’s a game of mystery, except the loser goes to jail. Thanks, Turbotax!
If you have children, the process of filing your taxes can get unpredictably complicated, thankfully, the government does provide information about what credits and deductions apply to families and children, and how to take advantage of them. If you have children, then you would be wise to look into these tax breaks.
The Difference Between The Care Tax Credit and Child Credits
Early childhood education.
The Child Tax Credit was designed to help families pay for the costs often associated with raising children throughout the year and was implemented to incentivize families to have more children. If you have children (or raise a child under certain circumstances) you might still be able to receive the Child Tax Credit even if you don’t normally have to file a tax return every year.
The credit provides up to $2,000 in credits for every child that qualifies. Because this is a credit, not a deduction, if you owe taxes it can only reduce your tax bill to $0. However, you can claim the Additional Child Tax Credit instead which gives you up to $1,700 as a refund for 2024.
You can claim this credit for any child who qualifies (using the criteria below) and who has a valid Social Security number.
This child must be under 17 years old (for at least part of the year), must not provide for more than half of their own support, live with you for more than half of the year, not be claimed as a dependent by someone else, be claimed on your own return, not file their own joint return taxes, be a citizen, national, or resident alien, and be your child, stepchild, foster child, sibling (of any type) or a descendent of any of these.
Additionally, if you earn more than $200,000 per year (or $400,000 on a joint return) you can’t claim this credit.
This is different from the Child and Dependent Care Credit.
This credit is available to anyone who paid someone else to care for their child while they had to work or look for a job.
For a qualifying child, if you paid any money in any amount for childcare, daycare, babysitting, after-school programs, or other services, and you lived in the United States for at least six months of the year, then you can claim those expenses on your tax return and receive a credit for every dollar you spent.
For other people, if they dependent is unable to care (like dress or feed themselves) for themselves and requires help to function throughout the day, you can claim any expenses related to their care while you work or look for work.
The child typically has to be younger than 13 years old or have a spouse or other dependent who can’t care for themselves and lives with you for at least six months out of the year. Tax services and professionals can calculate the amount of the credit you will receive based on your income and the percentage that you spent on care.
What Expenses Are Deductible?
Daycare for babies.
We looked through the IRS website, official documents, and tax-preparation websites to compile a short list of some of the expenses you can claim as deductions for child care on your taxes.
- If you pay a family member (other than your own children or spouse) to care for your children, you can claim those payments as dependent care credits, even if they live in your home, as long as you don’t claim them as dependents.
- Any money paid to a care center or service that cares for your dependent, as long as the dependent still lives in your home for at least eight hours every day and the facility complies with certain regulations.
- Before- and after-school care are qualified expenses as long as you spend that time working or looking for work.
- Overnight camps, private schools and kindergartens, retirement homes, and other similar expenses are not qualified expenses.
The good thing about this credit is that it can be refunded meaning, even if the credit is more than you owe in taxes, the remainder will be refunded to you. In order to claim these expenses and take advantage of the credit, you will need to fill in Form 2441 with your tax return. Tax-filing software and services usually help you through this part seamlessly with just a few questions.
As always, there are caveats, special cases, and exceptions to these rules and qualifications, you should always speak with a tax expert if you are unsure about which expenses to include.
You should also keep detailed records of the expenses you made and the time you spent working or looking for work in the event you are audited and asked to account for your money and time.
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