Being a parent isn’t easy—and it isn’t cheap, either. While the IRS isn’t going to help with babysitting or changing diapers, they are willing to cut parents a few much-needed tax breaks. These include tax credits for child care costs, for ongoing education, and simply for having more mouths to feed. Knowing about these breaks is the first step to taking advantage of them, so let’s dig in and see what tax breaks parents need to know about!
Tax Break #1: Child Credits
The first tax break we’ll cover for parents is also the easiest: simply having children. The Child Tax Credit (for 2018) provides up to $2,000 for every child in your care under the age of 17 (as long as you meet certain income requirements). There’s also a refundable portion of up to $1,400 per child, but these credits start to disappear when a single filer earns over $200,000 a year, or $400,000 for joint filers.
There’s also an Earned Income Tax Credit which can drastically reduce the amount you pay in taxes. Having three or more children while earning less than $49,194 as a single person or $54,884 as a married couple, can make you eligible for this big tax credit. These income thresholds get lower depending on the number of children you have. The more children you have, the more money you can make while remaining eligible for the credit.
Tax Break #2: Child Care
The IRS is also sympathetic towards parents spending a lot on child care. The child and dependent care credit covers up to 35% of child-care expenses, or up to $3,000 for a child under the age of 13. You can also get an additional $3,000 credit for a second child, though both credits depend on your income.
You can squeeze a little more out of this credit by going through your employer, who can exclude up to $5,000 from your taxable wages for child-care expenses. But this is only good if you have a single child, as you can’t stack it for additional children. That means you’re better off trying for the $6,000 credit for having two children.
Tax Break #3: School
If you’re putting your kids through school, there are a number of potential tax benefits open to you at both a state and federal level—though federal deductions and credits only apply for college or other post-secondary education costs. Look into the American Opportunity Credit, which replaces the Hope Credit, and offers $2,500 in tax credit for tuition and other education expenses to individuals earning no more than $80,000 a year (or twice that for a married couple).
Speaking of education expenses, you may be able to deduct up to $2,500 in interest payments if you took out student loans to help your child pay for school. This only works if the loan is in your name though—if your child took out the loan themselves and you’re just helping with payments, you’re out of luck.
Tax Break #4: Medical and Dental Expenses
If you itemize your deductions, you may be able to deduct certain medical and dental expenses—including those for your children. This only applies to amounts that exceed 7.5% of your adjusted gross income, but for some people this could be a very beneficial bit of tax relief.
Tax Break #5: Head of Household Status
If you have a child or other qualifying dependent, you may be able to file as Head of Household instead of as a single individual. Doing so gives you some more generalized breaks and reduces your overall tax burden. If you can file as Head of Household, you absolutely should.
Don’t Forget to Update Your Withholdings!
If you file a W4 and have your employer withhold earnings, don’t forget to update your paperwork when you have a new child. It’s quick and easy to do, and it will help make sure you aren’t paying the government more than you should. This is true of any major change-of-life event, like marriage or divorce, as well. It’s always a good practice to make sure your W4 is up to date.