Raising a Massachusetts child is expensive, to say the least. Uncle Sam recognizes that — to an extent — at tax time.
There’s a tax break for just about everyone — close to 90% of federal income tax returns claim the standard deduction, after all — but Uncle Sam does offer more savings opportunities to some taxpayers than others.
Taxpayers who have children are another example.
Some of the tax breaks for parents were especially valuable during the 2021 tax year, due to temporary tax code changes on account of the COVID-19 pandemic.
While they won’t all be as valuable for the 2022 tax year — the one for which your return is due by April 2023 — these tax breaks still can help parents offset costs ranging from daycare to college tuition.
Here’s a look at the federal income tax credits and deductions that are currently available to taxpayers who have dependents, along with how much each one is worth. Be aware that many have income restrictions so high-earning parents might not be eligible for some tax incentives.
The child tax credit was created in 1997 to provide tax relief to middle- and upper-middle-income parents. Initially, it was a nonrefundable credit worth up to $500 per qualifying dependent.
The child tax credit has since been expanded numerous times and in various ways, including making it available to lower-income families, making it partially refundable and increasing its value.
Most recently, the American Rescue Plan Act of 2021 expanded the tax credit in several ways, although those changes were temporary, applying only to the 2021 tax year.
How much it’s worth: The 2021 law temporarily increased the maximum value of the child tax credit from $2,000 to either $3,000 or $3,600, depending on a qualifying dependent’s age. For the 2022 tax year, the max value reverts to $2,000.
2. Credit for other dependents
Not all dependents qualify for the child tax credit. For example, a taxpayer cannot claim the child tax credit for a dependent who is 17 or older (although the American Rescue Plan Act made an exception to that rule for 2021 only).
When a taxpayer has a dependent who does not qualify for the child tax credit, the taxpayer may be able can claim the credit for other dependents, a nonrefundable credit created in 2017.
How much it’s worth: The credit for other dependents has a maximum value of $500 per qualifying dependent.
3. Child and dependent care credit
The child and dependent care credit, which went into effect in 1976, was designed to help offset the cost of child care for working parents. It is nonrefundable (although the American Rescue Plan Act made it refundable for 2021 only).
4. More generous thresholds for the earned income tax credit
The earned income tax credit, created in 1975, originally was designed to supplement the wages of low-income workers and, in turn, help reduce the number of families in need of welfare benefits. Today, the earned income tax credit is one of the federal government’s largest anti-poverty programs.
It’s available to low- and moderate-income taxpayers who have earned income, such as from wages, and who are otherwise are eligible for the credit — regardless of whether they have children. But the credit is more generous for eligible taxpayers who have children.
The income thresholds that determine whether a taxpayer may be eligible for the earned income tax credit are higher for those with qualifying dependents, as is the maximum value of the credit.
How much it’s worth: For the 2022 tax year, the maximum value of the earned income tax credit ranges from $560 (for taxpayers without dependents) to $6,935 (for taxpayers with three or more qualifying dependents) — and it’s refundable.
5. Bigger standard deduction for single parents
The tax-filing status known as “head of household” — which is for non-married taxpayers with dependents was created in 1951. This change gave a significant boost to single parents’ bottom lines at tax time because it increased their standard deduction.
How much it’s worth: For the 2022 tax year, the standard deduction for taxpayers filing as head of household is $19,400 — compared with $12,950 for those filing as single. That means a single parent would not owe any taxes on the first $19,400 of their 2022 income — as opposed to the first $12,950 — if they choose to take the standard deduction.
6. American opportunity tax credit
The American opportunity tax credit was created in 2009, when it replaced a tax credit known as the hope credit. The American opportunity tax credit is designed to help offset college expenses like tuition for students who are in the first four years of their higher education and pursuing a recognized education credential or degree, such as an associate or bachelor’s degree.
The credit is not limited to parents, but parents who cover college expenses for their dependents often are eligible to claim it on their tax returns.
How much it’s worth: The American opportunity tax credit is worth up to $2,500 per year per qualifying student and can be claimed up to four times.
7. Lifetime learning credit
The lifetime learning credit, created in 1997, helps offset a broader array of post-secondary education expenses, including the cost of graduate- and professional-degree courses.
How much it’s worth: The lifetime learning credit is worth up to $2,000 per tax return, but unlike the American opportunity tax credit, there is no limit on the number of times a taxpayer can claim it.
8. Adoption credit
The adoption credit, which first went into effect in 1997, was designed to help offset the costs of adopting a child. It is nonrefundable but can be carried forward for up to five years.
How much it’s worth: For the 2022 tax year, the adoption credit is worth up to $14,890.
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