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How kids impact your tax picture

Kids are expensive.

There, we said it.

How expensive? According to a U.S. Department of Agriculture report, the average cost to raise one child until the age of 17 is $233,610.¹ If that number doesn’t jump out at you, think of it this way: It’s almost a quarter of a million dollars. Divide that over 17 years, and you’re looking at $13,741 per year—for one child.

It’s enough to give you pause on having kids. But fear not—one of many silver linings is that having children can help reduce the amount you owe when it comes to taxes. In some cases, you may even get a refund! (Spoiler alert: No, not in exchange for returning your kid.)

Whether you’re a new, seasoned or soon-to-be parent, this one’s for you. Let’s dive into some tax benefits and see how children affect your general tax picture.

Filing fundamentals

If you’ll be filing taxes with a child for the first time, there are two dependency requirements they’ll need to meet:

  1. They need a social security number (SSN).

  2. They must live with you for more than half the year.

Suppose you’re single and just had a baby. In that case, your filing status can change to Head of Household (HH), which can give you a larger standard deduction and more favorable tax brackets (i.e., you could pay less federal tax than you would if you were filing single for the same income).

Sorry, married folks—if you’re filing jointly, having children doesn’t change your filing status. If you’re married and file separately, you won’t be able to claim some child-related tax credits.

When filing taxes, parents may be able to take advantage of multiple tax credits and deductions. Tax credits are different from deductions in that deductions lower your taxes by reducing the amount of taxable income.

6 possible child-related tax credits

If you can claim your child as a dependent, you’ll most likely be eligible for tax credits, and that’s a good thing. Credits reduce your taxes dollar for dollar and can be refundable. The good news here is that even if you owe zero dollars, a tax credit can result in a refund.

Here are the six possible child-related tax credits available to parents filing taxes:

Child tax credit

This credit is a tax benefit to help families raise children. For 2022, parents can file a credit for $2,000 per qualifying dependent under age 17.

Child and dependent care credit

This credit applies to childcare expenses for dependents under the age of 13. Based on your tax bracket, parents can claim 35% of up to $3,000 in costs per child, and up to $2,100 for two or more children.

Earned income tax credit

For those earning a low or moderate income, the credit can range from $560 to $6,935, depending on your filing status and number of children.

Adoption tax credit

For families adopting children, this credit of up to $14,890 can offset the expenses of adopting a child, excluding adopting a stepchild.

American opportunity tax credit

This credit applies to children over 18 who are pursuing higher education. It covers 100% of eligible tuition and required fees up to $2,000, and 25% of the next $2,000. The credit is limited to filers whose modified adjusted gross income is $80,000 or less, or $160,000 for those married and filing jointly.

Lifetime learning tax credit

For parents earning less than $59,000 as a single filer or less than $118,000 for those married and filing jointly, this applies to college-aged students and offers up to a 20% credit on eligible expenses up to $10,000.

Remember these child-related tax credits if or when the conversation turns to creating or expanding your family. And if you’re currently a parent, we hope we’ve opened your eyes to additional credits you can claim. As always, it’s best to consult with a qualified tax professional when claiming these credits on your taxes.

¹USDA, Expenditures on Children by Families, 2015

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